Exhibit 13.1
                          Annual Report to Shareholders

                                     [LOGO]
                              --------------------
                                366 WALKER DRIVE
                             STATE COLLEGE, PA 16801

                             www.omegafinancial.com

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                      |
                [LOGO]| OMEGA FINANCIAL CORPORATION
                      | 2004 ANNUAL REPORT
                      |

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                  Omega Financial Corporation and Subsidiaries

                             SELECTED FINANCIAL DATA

      The  following  selected  unaudited  financial  data  of  Omega  Financial
Corporation and  subsidiaries  for the five years ended December 31, 2004 should
be read in  conjunction  with the  consolidated  financial  statements  of Omega
Financial  Corporation  and the notes thereto,  which are set forth elsewhere in
the Annual Report.

                           FIVE-YEAR FINANCIAL SUMMARY

<TABLE>
<CAPTION>
                                                          2004              2003           2002           2001             2000
                                                       ----------------------------------------------------------------------------
                                                                  (In thousands of dollars, except share and per share data)
<S>                                                    <C>             <C>             <C>             <C>             <C>
BALANCE SHEET INFORMATION at December 31
  Assets ............................................  $  2,082,571    $  1,140,166    $  1,154,557    $  1,158,629    $  1,113,836
  Deposits ..........................................     1,502,082         907,580         919,255         931,667         889,501
  Loans, net ........................................     1,312,606         788,144         779,819         760,354         751,985
  Investment securities .............................       327,979         240,539         251,508         266,658         241,736
  Short-term borrowings .............................        90,241          33,263          41,452          37,572          45,754
  Junior subordinated debentures ....................        57,190              --              --              --              --
  Long-term debt (including ESOP debt) ..............       101,789          24,121          19,069          20,344          10,264
  Shareholders' equity ..............................       315,739         167,439         162,110         156,250         155,204
  Number of shares outstanding--common ..............    12,593,524       8,458,823       8,099,778       8,222,010       8,606,983
  Number of shares outstanding--preferred ...........            --              --         219,781         219,781         219,781

INCOME STATEMENT INFORMATION Years Ended December 31
  Total interest income .............................  $     62,371    $     56,783    $     64,960    $     76,006    $     76,945
  Net interest income ...............................        45,705          43,077          45,637          45,143          45,819
  Provision (credit) for loan losses ................          (300)            350             630             500             428
  Income before income taxes ........................        22,343          22,011          23,829          23,532          23,112
  Income tax expense ................................         5,322           4,826           5,650           5,877           5,983
  Net income ........................................        17,021          17,185          18,179          17,655          17,129

PER COMMON SHARE DATA
  Net income--basic .................................  $       1.79    $       2.07    $       2.17    $       2.08    $       1.92
  Net income--diluted ...............................          1.78            2.01            2.10            2.01            1.87
  Cash dividends--common ............................          1.20            1.17            1.13            1.07            1.03
  Book value--common ................................         25.07           19.79           19.63           18.65           17.73
  Book value--tangible ..............................         11.28           19.79           19.63           18.65           17.73

FINANCIAL RATIOS
  Return on average tangible equity .................         11.84%          10.32%          11.32%          11.50%          11.13%
  Return on average common equity ...................          8.89%          10.32%          11.32%          11.50%          11.13%
  Return on average assets ..........................          1.24            1.50            1.58            1.56            1.59
  Dividend payout--common ...........................         66.91           55.76           50.76           50.01           52.42
  Average equity to average assets ..................         13.97           14.53           13.96           13.54           14.28
</TABLE>


                               Omega Financial Corporation 2004 Annual Report  1
<PAGE>

                  Omega Financial Corporation and Subsidiaries

          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

COMPANY OVERVIEW

      This discussion concerns Omega Financial  Corporation and the consolidated
results of its active subsidiaries  ("Omega" or the "Corporation"),  Omega Bank,
N.A. ("Omega Bank"),  Central  Pennsylvania  Investment  Company ("CPI") and its
subsidiary Omega Insurance Agency ("OIA"),  Central  Pennsylvania Life Insurance
Company  ("CPLI"),  Beacon Life  Insurance  Company  ("BL"),  Mid Penn Insurance
Associates,  Inc. ("Mid Penn") and Central Pennsylvania Leasing, Inc. Omega Bank
has two principal  subsidiaries,  Sentry Trust Company and Bank Capital Services
Corporation.  On October 1, 2004,  Omega  completed its merger with Sun Bancorp,
Inc.  ("Sun").  Immediately  after the Sun merger,  we merged Sun Bank, the only
banking  subsidiary held by Sun, into Omega Bank. The purpose of this discussion
is to focus on information concerning Omega's financial condition and results of
operations  that  is  not  readily  apparent  from  the  consolidated  financial
statements.  In order to obtain a clear  understanding of this  discussion,  the
reader should reference the consolidated financial statements, the notes thereto
and other financial information presented in this Annual Report.

FORWARD-LOOKING STATEMENTS

      The information  contained in this Annual Report 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 and
other  statements which are not historical facts or as to trends or management's
intentions,  plans,  beliefs,  expectations  or opinions.  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 including without limitation, the effect of economic
conditions  and  related  uncertainties,  the  effect of  interest  rates on the
Corporation, federal and state government regulation and competition. Certain of
these risks, uncertainties and other factors are discussed in this Annual Report
or in Omega's Annual Report on Form 10-K for the year ended December 31, 2004, a
copy of which may be obtained from Omega upon request and without charge (except
for the exhibits thereto).

EXECUTIVE SUMMARY

Nature of Operations

      Omega  Financial  Corporation  is a financial  holding  company  operating
primarily  in  Central  and  Northeastern  Pennsylvania,  with  the  purpose  of
delivering  financial  services within its local market.  Consisting of one bank
and five active  non-bank  subsidiaries,  Omega Financial  Corporation  provides
retail and commercial  banking services  through 68 offices in Centre,  Clinton,
Mifflin,  Juniata,  Blair,  Huntingdon,   Bedford,   Lycoming,   Snyder,  Union,
Northumberland,  Luzerne, Dauphin and Cumberland counties.

      Omega Bank  provides a full range of  consumer  and  commercial  services.
Consumer  services include Internet and telephone  banking,  an automated teller
machine network, personal checking accounts, interest checking accounts, savings
accounts,  insured money market accounts,  debit cards, investment certificates,
fixed and variable rate  certificates  of deposit,  club  accounts,  secured and
unsecured  installment  loans,  auto  and  equipment  leases,  construction  and
mortgage loans, safe deposit  facilities,  credit lines with overdraft  checking
protection,  IRA accounts and student loans. Commercial banking services include
small and high-volume  business checking  accounts,  on-line account  management
services,  ACH origination,  payroll direct deposit,  commercial cash management
services, lockbox service and repurchase agreements.  Omega Bank also provides a
variety of trust and asset management services. Through its subsidiaries OIA and
Mid Penn  Insurance  agencies,  a full  complement  of auto,  home and  business
insurance as well as term life insurance is available.  Omega offers  annuities,
mutual funds,  stock and bond brokerage  services,  long-term care insurance and
sophisticated  life products  through an arrangement  with a  broker-dealer  and
insurance brokers.  Management  believes the Corporation has a relatively stable
deposit base with no major seasonal  depositor or group of  depositors.  Most of
the  Corporation's  commercial  customers are small and mid-sized  businesses in
central and  northeastern  Pennsylvania.  The  acquisition  of Sun  strengthened
Omega's position with this customer base and broadened its geographic reach.

Economic and Industry-Wide Factors Relevant to Omega

      As a  financial  services  organization,  Omega's  core  business  is most
influenced  by the  movement of interest  rates.  Lending and  investing is done
daily,  using  funding from deposits and  borrowings,  resulting in net interest
income,  the most  significant  portion of operating  results.  The  Corporation
continually   projects  the  effects  of  changes  in  interest   rates  through
asset/liability   management,   product  pricing  and  review  and  analysis  of
competition.

      General economic conditions are relevant to Omega's business. In addition,
economic  factors impact the customers' need for financing,  thus affecting loan
growth.  Additionally,  changes in the  economy can  directly  impact the credit
strength of existing and potential borrowers.

Focus of Management

      Management  is committed to achieve  long-term  stability and measures its
success by five key elements.

      Customer  Relationships--Omega  strives to maximize customer satisfaction.
We are sensitive to the broad array of financial  alternatives  available to our
customers from both local and global competition.  We are committed to fostering
a  complete  customer  relationship  and plan to  continue  to  provide  for the
financial needs in future generations as in the past.

      Shareholder  Satisfaction--Omega  believes our investors are entitled to a
good  return on their  investment  through  both stock  value  appreciation  and
dividend  returns.  We intend to continue to protect  their  investment  through
long-term   stability  of  our  balance  sheet  and   earnings.

      Balance Sheet Stability--By  maintaining a disciplined  approach,  we have
built a solid  balance  sheet.  In spite of  intense  competition,  we  maintain
stringent  credit  standards;  these high  credit  standards  have  resulted  in
favorable comparisons to our peer group in terms of


2
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loan charge-offs and levels of non-performing  loans. We believe we consistently
pay fair market  rates on all  deposits,  minimizing  funding and balance  sheet
volatility.  We also  believe  we  have  invested  wisely,  in  compliance  with
self-imposed standards, minimizing risk of asset impairment.

      Operating  Results--We  believe  Omega's  management  keeps a sharp eye on
earnings  results.  While  earnings  in 2004 were less  than in prior  year,  we
believe they are quite good, with many of our profitability  ratios consistently
exceeding  those of our peer  group.  The  acquisition  of Sun during the fourth
quarter of 2004  affected the year's  results and will be  discussed  during the
management discussion and analysis of financial condition.

      Commitment  to the  Community--We  are active  corporate  citizens  of the
communities we serve. Although the world of banking is ever-changing and in some
cases does not even require a physical  building,  we believe that our community
banking philosophy is still valid. Despite  technological  advances,  banking is
still a personal  business.  We believe that our customers shop for services and
value a relationship  with an institution  involved in the same community,  with
the same interests in its prosperity. We have a foundation and a history in each
of the communities we serve.  Our employees live there; we encourage and support
community involvement.

Omega's Opportunities

      We seek to continually  enhance our customer delivery system, both through
technology and physical facilities. We are currently considering the addition of
a new financial  service center in the Centre county region.  We have short-term
and  long-term  plans to  revitalize  many  existing  branch  locations  through
remodeling  for  efficiencies  or  relocation  for improved  access and customer
convenience.  We continually examine opportunities to upgrade technology both to
cater to our customers' needs and to increase operational efficiency.

Omega's Challenges

      Competition--We  are  experiencing  more intense  competition than we have
ever seen in our long  history.  No longer is our  competition  limited to local
community institutions or strictly to financial institutions. Our primary market
area includes  several very  prosperous  communities,  an attractive  target for
competitors.  To meet  this  challenge,  we  stay  in  close  contact  with  our
customers,   monitoring   their   satisfaction   with   our   services   through
professionally  conducted  surveys,   personal  visits  and  networking  in  the
communities we serve. We strive to meet our customers'  expectations and deliver
consistent high-quality service.

      Regulated  Company--Omega  is  subject to  banking  regulation  as well as
regulation by the Securities and Exchange  Commission  (SEC),  and as such, must
comply with several laws,  including the USA Patriot Act and the  Sarbanes-Oxley
Act of 2002.  Management  has  instituted a series of actions to strengthen  and
improve  Omega's  already  strong  corporate  governance  practices,   including
formation of a Disclosure  Committee for  Financial  Reporting and adoption of a
Code of Ethics for all directors, officers and employees.

      Omega has incurred  direct and indirect costs  associated  with compliance
with the SEC's filing and reporting  requirements imposed on public companies by
Sarbanes-Oxley, as well as adherence to new and existing banking regulations. It
is unlikely that regulatory demands will be reduced, and management expects that
more resources will be dedicated to meet future compliance standards.

APPLICATION OF CRITICAL ACCOUNTING POLICIES

      The  Corporation's  consolidated  financial  statements are prepared based
upon the application of U.S. generally accepted accounting principles,  the most
significant of which are described in Note 1--Summary of Significant  Accounting
Policies.  Certain of these  policies  require  numerous  estimates and economic
assumptions,  based upon  information  available as of the date of the financial
statements.  As such,  over  time,  they may  prove  inaccurate  or vary and may
significantly  affect the Corporation's  reported results and financial position
for the period or in future periods.  The accounting policy for establishing the
allowance for loan losses has a greater reliance on the use of estimates, and as
such has a greater possibility of producing results that could be different than
originally reported. Changes in underlying factors,  assumptions or estimates in
the allowance for loan losses could have a material impact on the  Corporation's
future financial condition and results of operations.

      Pages 7-8 of this  Annual  Report  to  Shareholders  provide  management's
analysis  of the  Company's  allowance  for loan  losses and  related  provision
expense.  The  allowance  for loan  losses  is  maintained  at a level  believed
adequate  by  management  to  absorb  probable  losses  in the  loan  portfolio.
Management's  determination  of the adequacy of the allowance for loan losses is
based upon an evaluation of individual credits in the loan portfolio, historical
loan loss experience,  current economic conditions,  and other relevant factors.
This determination is inherently  subjective,  as it requires material estimates
including the amounts and timing of future cash flows expected to be received on
impaired loans that may be susceptible to significant  change. The allowance for
loan losses  related to loans  considered to be impaired is generally  evaluated
based on the discounted cash flows using the impaired  loan's initial  effective
interest  rate or the  fair  value  of the  collateral  for  certain  collateral
dependent loans.

      Omega's  accounting  policy for the  determination  of goodwill  and other
intangibles  also has a significant  reliance on the use of estimates.  Goodwill
represents the excess of the cost of an  acquisition  over the fair value of the
net assets  acquired.  Other intangible  assets represent  purchased assets that
also lack physical  substance but can be separately  distinguished from goodwill
because of  contractual or other legal rights or because the asset is capable of
being  sold or  exchanged  either  on its own or in  combination  with a related
contract,  asset or liability.  It is Omega's  policy that goodwill be tested at
least annually for impairment.  Management's  current analysis  indicates that a
37%  decline  in  market  capitalization  could  have a  material  impact on the
carrying value of goodwill.

      Intangible  assets with  finite  lives  include  core  deposits,  customer
relationships  and trade  names.  Intangible  assets are  subject to  impairment
testing whenever events or changes in  circumstances  indicate that the carrying
amount may not be recoverable.  Core deposit,  customer relationship and certain
trade name intangibles are amortized over a period of time that represents their
expected  life  using a method of  amortization  that  reflects  the  pattern of
economic benefit.  Management estimates that consecutive annual declines of more
than 9% of the  acquired  customer  base  subsequent  to December 31, 2004 could
result in an  impairment  of the core  deposit  intangible  and  affect  Omega's
operating results in future years.


                               Omega Financial Corporation 2004 Annual Report  3
<PAGE>

FINANCIAL CONDITION

Balance Sheet Summary

      On October 1, 2004, Omega acquired Sun Bancorp,  Inc. ("Sun") with assets,
liabilities and equity with market values of $1,153,269,000,  $1,009,294,000 and
$143,975,000,  respectively.  This  represented an increase of 100.5% in Omega's
assets resulting in combined assets of $2,301,254,000, as well as liabilities of
$1,988,260,000  and equity of  $312,994,000.  On December 31, 2004, total assets
were $2,082,571,000  representing a $942,404,000 or 82.7% increase when compared
to December 31, 2003.  In the Merger,  Sun  shareholders  received  either 0.664
shares of Omega  common  stock for each share of Sun  common  stock or $23.25 in
cash for each share held, depending on shareholder  elections and subject to the
allocation  provisions  of the Merger  Agreement.  Under the terms of the Merger
Agreement,  20% of the  outstanding  Sun common stock was exchanged for cash and
80% of the  outstanding  Sun common stock was  exchanged for Omega common stock.
The following schedule summarizes the allocated cost of the acquisition.

                             Sun Bancorp Acquisition


Cash, with 20% of Sun shares paid at $23.25
  per share ........................................   $   35,921,000
Value of Sun shares converted at an exchange
  ratio of 0.664 for 1 .............................      142,122,000
Incremental direct costs associated
  with transaction .................................        7,833,000
Fair value of outstanding employee and
  non-employee stock options .......................        1,853,000
                                                       --------------
Total purchase price ...............................      187,729,000
Net assets acquired:
Sun's tangible book value ..........................       36,503,000
Estimated adjustments to reflect assets
  acquired at fair value ...........................      (22,810,000)
Identified intangible assets acquired ..............       17,077,000
                                                       --------------
Goodwill ...........................................   $  156,959,000
                                                       ==============

      During  the  fourth  quarter  management  executed  most  of  its  planned
post-merger  restructuring  efforts  that  included the sale of Sun's auto lease
portfolio and investment  securities and the early  extinguishment  of long term
Federal  Home  Loan  Bank  Debt and a  related  interest  rate  swap  and  other
subordinated  debt. The result of this program  resulted in a reduction of total
assets by $194,265,000. Due to the favorable movement in interest rates from the
date acquired to the date  disposed,  the Company  recognized a $652,000 gain on
the sale of the  securities  and a  $570,000  gain on the  disposal  of debt and
liquidation  of the  related  interest  rate  swap.  The sale of the auto  lease
portfolio  was  consummated  at  essentially  the  fair  value  of the  acquired
portfolio.

      Table 1 below  reflects  an  analysis of the sources and uses of funds for
2004 based on average balances.  Table 2 reflects the ending balances at various
times in order to explain the impact that the Sun  acquisition has had on Omega.
These two tables will be referred to during this discussion.

      Omega's  average  assets  for 2004  were  $1,371,227,000  as  compared  to
$1,145,407,000  for 2003. This  represented a  $225,820,000,  or 19.7% year over
year  increase,  due to the  Sun  acquisition.  The  assets  acquired  from  Sun
approximated  $1,153,269,000  and averaged  $239,751,000  in 2004.  Omega's 2003
total  average  assets  decreased  by  0.4%,  from  $1,149,810,000  in  2002  to
$1,145,407,000.  In  order to  optimize  its  present  and  future  performance,
management must constantly assess various risk factors and act accordingly. When
performing  comparative analyses of average balances,  certain activities of the
Corporation which impact asset or liability category balances must be taken into
consideration  such as the Sun merger in 2004,  and the sale of  $10,158,000  of
mortgage loans in June of 2003.  These types of transactions  are in addition to
normal banking activity and can have a material impact on Omega's performance.

                                     Table 1
                      Changes in Uses and Sources of Funds
                                ($ in thousands)

<TABLE>
<CAPTION>
                                       2004       Increase (Decrease)       2003       Increase (Decrease)       2002
                                      Average     -------------------      Average     -------------------      Average
                                      Balance      Amount       %          Balance      Amount       %          Balance
                                    -------------------------------------------------------------------------------------
<S>                                 <C>           <C>           <C>      <C>           <C>           <C>      <C>
FUNDING USES:
Loans ............................  $   876,317   $ 131,185      17.6%   $   745,132   $ 14,860        2.0%   $   730,272
Tax-exempt loans .................       49,785       4,981      11.1         44,804       (766)      (1.7)        45,570
Investment securities ............      176,061      33,494      23.5        142,567    (26,104)     (15.5)       168,671
Tax-exempt investment securities .       85,567     (12,175     (12.5)        97,742      1,867)       1.9         95,875
Interest bearing deposits ........       22,680      12,428     121.2         10,252     (1,724)     (14.4)        11,976
Federal funds sold ...............       20,503       1,370       7.2         19,133      6,076       46.5         13,057
                                    -------------------------------------------------------------------------------------
    Total interest earning assets     1,230,913     171,283      16.2      1,059,630     (5,791)      (0.5)     1,065,421
Non-interest earning assets ......      146,627      60,226      69.7         86,401       (717)      (0.8)        87,118
Unrealized gains on investments ..        6,194      (4,093)    (39.8)        10,287      1,673       19.4          8,614
Less: Allowance for loan losses ..      (12,507)     (1,596)     14.6        (10,911)       432       (3.8)       (11,343)
                                    -------------------------------------------------------------------------------------
    Total uses ...................  $ 1,371,227   $ 225,820      19.7%   $ 1,145,407   $ (4,403)      (0.4)%  $ 1,149,810
                                    =====================================================================================
FUNDING SOURCES:
Interest bearing demand deposits .  $   343,527   $  56,397      19.6%   $   287,130   $ 17,520        6.5%   $   269,610
Savings deposits .................      159,776      29,651      22.8        130,125     11,796       10.0        118,329
Time deposits ....................      389,206      40,568      11.6        348,638    (46,072)     (11.7)       394,710
Repurchase agreements ............       21,716       5,258      31.9         16,458        265        1.6         16,193
Other borrowed funds .............       83,283      44,894     116.9         38,389     (1,197)      (3.0)        39,586
                                    -------------------------------------------------------------------------------------
    Total interest bearing
     liabilities .................      997,508     176,768      21.5        820,740    (17,688)      (2.1)       838,428
Demand deposits ..................      172,721      25,436      17.3        147,285      8,882        6.4        138,403
Other liabilities ................        9,486      (1,427)    (13.1)        10,913     (1,515)     (12.2)        12,428
Shareholders' equity .............      191,512      25,043      15.0        166,469      5,918        3.7        160,551
                                    -------------------------------------------------------------------------------------
    Total sources ................  $ 1,371,227   $ 225,820      19.7%   $ 1,145,407   $ (4,403)      (0.4)%  $ 1,149,810
                                    =====================================================================================
</TABLE>


4
<PAGE>

      Average   balances  of  funding  sources  for  2004  increased  19.7%,  or
$225,820,000 to  $1,371,227,000  when compared to  $1,145,407,000  for 2003. Sun
contributed  average funding  sources of  $240,935,000 in 2004.  Omega's funding
sources  decreased on average in 2003 as compared to 2002 by 0.4%. In 2003,  the
decrease in funding  sources was  primarily  from the reduction in time deposits
and resulted in reduced levels of investment securities.

      More detailed  discussion of Omega's  interest earning assets and interest
bearing liabilities will follow in sections titled Loans, Investments,  Deposits
and Market Risk.

      The following  table shows Omega's balance sheet at December 31, 2003, the
addition  of Sun's  balance  sheet at  October  1, 2004 and the  effect of other
activities  that occurred  during 2004,  which roll forward into the final Omega
balance sheet as of December 31, 2004.

                                     Table 2
     Omega Financial Corporation and Subsidiaries Balance Sheet Rollforward
                                 (In thousands)

<TABLE>
<CAPTION>
                                                                                                Other
                                                                  Omega at    Sun Purchase    Activity       Omega at
                                                                 12/31/2003     10/1/04      during 2004     12/31/04
                                                                 -----------------------------------------------------
<S>                                                              <C>           <C>            <C>           <C>
ASSETS
Cash and due from banks .....................................    $   32,420    $   20,510     $   5,053     $   47,877
Interest bearing deposits with other banks ..................        10,683         2,322        18,117         31,122
Federal funds sold ..........................................        17,850            --        18,500         36,350
Investment securities available for sale ....................       240,539       213,391      (125,951)       327,979
Investment in unconsolidated subsidiary .....................            --           511         1,114          1,625
Loans, net of unearned interest and allowance for loan losses       777,575       654,352      (119,321)     1,312,606
Other assets ................................................        61,099       268,823        (4,911)       325,011
                                                                 -----------------------------------------------------
TOTAL ASSETS ................................................    $1,140,166    $1,159,909     $(217,505)    $2,082,570
                                                                 =====================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
  Non-interest bearing ......................................    $  155,702    $   69,540     $   3,165     $  228,407
  Interest bearing ..........................................       751,878       567,150       (45,354)     1,273,674
                                                                 -----------------------------------------------------
TOTAL DEPOSITS ..............................................       907,580       636,690       (42,189)     1,502,081
Short-term borrowings .......................................        33,263        35,826        21,152         90,241
ESOP debt ...................................................         2,521            --          (329)         2,192
Junior subordinated debentures ..............................            --        20,201        36,989         57,190
Long-term debt ..............................................        21,600       267,142      (189,145)        99,597
Other interest bearing liabilities ..........................           813            --            41            854
Other liabilities ...........................................         6,950        12,321        (4,595)        14,676
                                                                 -----------------------------------------------------
TOTAL LIABILITIES ...........................................       972,727       972,180      (178,076)     1,766,831
Shareholders' Equity ........................................       167,439       187,729*      (39,429)       315,739
                                                                 -----------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDER' EQUITY ...................    $1,140,166    $1,159,909     $(217,505)    $2,082,570
                                                                 =====================================================
</TABLE>

*     Fair value of assets  acquired from Sun were common stock issued and value
      of stock options assumed of $143,975,000 plus cash paid of $43,754,000.

Loans

      During 2004, total loans outstanding,  net of unearned interest, increased
$540,106,000  compared to an $8,325,000  increase in 2003.  The following  table
summarizes  the  changes in loan  balances  (in  thousands)  over the last three
years.

                                           2004         2003        2002
                                        ---------------------------------
New loans, net of repayments ........   $ (51,793)   $ 21,790    $ 25,571
Loans and leases sold ...............     (67,682)    (12,649)     (5,077)
Loans charged off ...................      (3,722)       (997)       (934)
Loans transferred to other
  real estate owned .................        (411)         --          --
Loans and leases acquired
  through acquisition of Sun ........     663,851          --          --
Market value amortization ...........         135          --          --
Other adjustments to ................
  carrying value ....................        (272)        181         (95)
                                        ---------------------------------
                                        $ 540,106    $  8,325    $ 19,465
                                        =================================

      In 2004, total average loans were $926,102,000 as compared to $789,936,000
in 2003, an increase of $136,166,000,  or 17.2%. The loans acquired from the Sun
acquisition were primarily responsible for the increase.

      During the year,  the commercial  loan  portfolio  increased on average by
$97,528,000,  or 21.4%.  The increase was a result of a $73,455,000  increase in
variable rate commercial loans and a $24,073,000 increase in fixed rate loans.

      Mortgage  loans on average  increased by $29,873,000 in 2004 when compared
to 2003. This increase was due to the acquired loans from Sun.

      Other consumer  loans on average  increased by $2,144,000 in 2004 compared
to the previous year.  Before the  acquisition of Sun, Omega was  experiencing a
decline in consumer balances. Management believes that the uncertain economy and
intense  competition  resulted in this decline in new loan activity.  Omega also
has maintained  tight credit  standards  that may also be  responsible  for this
decrease.

      Omega's lending strategy  stresses quality growth,  diversified by product
and  industry.   A  standardized  credit  policy  is  in  place  throughout  the
Corporation,  and a special  credit  committee  reviews all large loan  requests
prior to approval. Omega's commercial and consumer lenders make credit judgments
based on a  customer's  existing  debt  obligations,  ability to pay and general
economic trends.


                               Omega Financial Corporation 2004 Annual Report  5
<PAGE>

      Management has been monitoring the activity within the loan portfolio very
carefully and strives to be  competitive  within its market for both  commercial
and  residential  real estate loans.  Omega intends to actively pursue growth in
each of the loan categories again during 2005. Competition will continue to play
a key role in pricing decisions to maintain and build new loan volumes.

      The loan portfolio carries the potential risk of past due,  non-performing
or,  ultimately,  charged-off  loans. Omega attempts to manage this risk through
credit approval  standards,  as discussed above,  and aggressive  monitoring and
collection policies.

      Loan loss  reserves  have  been  established  in order to absorb  probable
losses on existing loans.  An annual  provision or credit is recorded to current
earnings to maintain the reserve at adequate levels.  Charge-offs and recoveries
are recorded as an adjustment  to the reserve.  The allowance for loan losses at
December  31,  2004 was  1.26% of total  loans,  net of  unearned  interest,  as
compared to 1.34% of total loans,  net of unearned  interest at the end of 2003.
The  allowance  increased  $5,075,000  when  compared to December 31, 2003.  Net
charge-offs  for 2004 and 2003 were  0.38% and  0.11%,  respectively  of average
loans.  The  increase  in the  reserve  was  primarily  the  result  of the  Sun
acquisition. This increase was partially offset by net charge-offs of $3,539,000
for  the  year.  This  represented  an  increase  of  $2,706,000  over  the  net
charge-offs in 2003. Most of this increase was the result of a large  commercial
account of  $1,006,000  (accounts  for  $681,000 of the  commercial  real estate
charge-off   and  $325,000  of  the   commercial,   financial  and   agriculture
charge-off),  and a portfolio of mobile home mortgages that were charged down by
$1,475,000  when  management  made the decision to sell these loans. At December
31, 2004 these loans were classified as available for sale.

                       Change in Allowance for Loan Losses
                                 (In thousands)

                                       2004       2003
                                      ----------------
Provision ........................    $  (300)   $ 350
Acquired from Sun ................      9,505)      --
Net charge-offs ..................     (3,539)    (833)
Reclassification of off
  balance sheet liability ........       (591)      --
                                      ----------------
                                      $ 5,075    $(483)
                                      ================

      At December  31, 2004,  non-performing  loans (as defined in Table 3) as a
percentage  of the  allowance for loan losses were 51.8% as compared to 32.3% at
December 31, 2003.  Of the  $8,107,000 of  non-performing  loans at December 31,
2004,  $7,213,000  were  collateralized  with real estate,  $877,000  with other
assets and $17,000 were unsecured.

      Non-performing  loans were 0.61% of loans as of  December  31,  2004,  and
0.43% of loans as of December 31, 2003. The increase in non-performing  loans in
2004 was primarily due to five large  commercial loans  aggregating  $2,963,000,
being placed in non-accrual status. The required allowance associated with these
five  large  commercial  credits  was less than the  weighted  average  required
reserve for non-performing  loans as these credits are secured by collateral and
are  in  the  early  stages  of  the  loss  migration  cycle.  Additionally  the
acquisition  of Sun's loan  portfolio  added  $2,182,000  to the total amount of
accruing loans past due 90 days or more.

                                     Table 3
                              Non-Performing Loans
                                 (In thousands)

                                        December 31,
                          ------------------------------------------
                           2004     2003    2002      2001     2000
                          ------------------------------------------
Non-accrual loans .....   $5,220   $2,588   $3,125   $2,327   $1,503
Accruing loans past due
  90 days or more .....    2,267      607      614    1,209      564
Restructured loans ....      220      223       12       32       98
                          ------------------------------------------
Total non-performing
  loans ...............   $8,107   $3,418   $3,751   $3,568   $2,165
                          ==========================================

      Loans  on  which  the  accrual  of  interest  has  been  discontinued  are
designated as non-accrual  loans.  Accrual of interest on loans is  discontinued
when reasonable doubt exists as to the full,  timely  collection of principal or
interest.  When a loan is placed on non-accrual  status, all interest previously
accrued but not collected is reversed  against current period income.  Income on
such loans is then recognized only to the extent that cash is received and where
the future  collection  of principal is probable.  Accruals are resumed on loans
only when they are brought fully current with respect to interest and principal,
and when,  in the  judgment  of  management,  the loan is  estimated  to be well
secured and fully collectible as to both principal and interest.

Allowance for Loan Losses

      The amount of allowance for loan losses is  determined  through a critical
quantitative   analysis  performed  by  management  that  includes   significant
assumptions and estimates. It must be maintained at a level deemed sufficient to
absorb probable  estimated  losses within the loan  portfolio,  and supported by
detailed  documentation.  Critical to this  analysis is any change in observable
trends that may be  occurring  relative  to loans,  to assess  potential  credit
weaknesses.

      Management  systematically monitors the loan portfolio and the adequacy of
the  allowance  for loan  losses on a quarterly  basis to provide  for  probable
losses  inherent in the  portfolio.  Omega's  methodology  for  maintaining  the
allowance is highly structured and consists of several key elements:

o     Historical Trends: Historical net charge-offs are computed as a percentage
      of average loans,  by loan type.  This percentage is applied to the ending
      period  balance of the loan type to determine the amount to be included in
      the allowance to cover charge-off probability.

o     Individual Loan Performance: Management identifies and maintains a list of
      high-risk loans called a Watch List. These loans are individually assigned
      a risk  rating  grade  because  the loan has not  performed  according  to
      payment  terms and there is reason to believe  that  repayment of the loan
      principal  in whole  or part is  unlikely.  The  specific  portion  of the
      allowance  for these loans is the total  amount of  potential  unconfirmed
      losses for these individual loans.


6
<PAGE>

o     General Economic Environment: Current economic factors and business trends
      relative  to  specific  types of loans are  assessed.  Omega's  lending is
      concentrated   within  central   Pennsylvania  and  accordingly  the  loan
      portfolio  quality is dependent upon localized  economic  factors such as:
      unemployment  rates,   commercial  real  estate  vacancy  rates,  consumer
      delinquency trends and residential housing appreciation rates.

o     Other  Relevant  Factors:  Certain  specific  risks  inherent  in the loan
      portfolio are identified  and examined to determine if additional  reserve
      is  warranted,  and if so,  management  assigns a  percentage  to the loan
      category. Such factors consist of:

          *    Credit Concentration:  Omega's loans are classified in accordance
               with the North American Industry  Classification  System (NAICS).
               Any group's  total which  exceeds 25% of Omega's total capital is
               considered  to  be  a  credit   concentration  and  as  such,  is
               determined to have an additional level of associated risk.

          *    Changes in Loan Volumes

          *    Delinquency and Non-Accrual trends

          *    Policy and Procedure Changes

      Individual  credits are selected  throughout  the year for  detailed  loan
reviews,  which are utilized by  management  to assess the risk in the portfolio
and the  adequacy of the  allowance.  Due to the nature of  commercial  lending,
evaluation of the adequacy of the allowance as it relates to these loan types is
often based more upon specific credit review,  with  consideration  given to the
potential impairment of certain credits and historical  charge-off  percentages,
adjusted for general  economic  conditions and other inherent risk factors.  The
allowance  not  specifically   allocated  to  individual  credits  is  generally
determined by analyzing  potential  exposure and other qualitative  factors that
could  negatively  impact the adequacy of the allowance.  Loans not individually
evaluated for impairment are grouped by pools with similar risk  characteristics
and the  related  historical  charge-off  percentages  are  adjusted  to reflect
current  inherent  risk  factors,   such  as   unemployment,   overall  economic
conditions,  concentrations of credit, loan growth, classified and impaired loan
trends, staffing adherence to lending policies and loss trends.

      Conversely,  due  to  the  homogeneous  nature  of  the  real  estate  and
installment  portfolios,  the  portions  of the  allowance  allocated  to  those
portfolios are primarily  based on prior  charge-off  history of each portfolio,
adjusted for general economic conditions and other inherent risk factors.

      Determination of the allowance for loan losses is subjective in nature and
requires  management to periodically  reassess the validity of its  assumptions.
Differences  between net charge-offs and estimated losses are assessed such that
management  can  timely  modify its  evaluation  model to ensure  that  adequate
provision has been made for risk in the total loan portfolio.

      Management  applied  the  methodology  described  in  this  report  to the
acquired  Sun loan  portfolio,  including a review of Sun's  historical  trends.
Sun's loan  charge-off  trends were reviewed by loan type and allocated at their
respective  historical  levels to  determine  the amount to be  included  in the
allowance.  Management  also  reviewed  Sun's high risk  (watch  list) loans and
assigned a specific  portion of the  allowance for  estimated  probable  losses.
Other risk factors unique to Sun's loan  portfolio were  identified and examined
with additional reserve allocations assigned as warranted.

      The  following  tables show how the allowance for loan losses is allocated
among the various types of outstanding loans and the percent of loans by type to
total loans.

                           Allocation of the Allowance for Loan Losses
                         -----------------------------------------------
                           2004      2003      2002     2001       2000
                         -----------------------------------------------
                                         (In thousands)
Commercial,
  financial and
  agricultural ........  $ 6,048   $ 3,954   $ 3,761   $ 4,013   $ 5,192
Real estate--
  commercial ..........    4,073     3,486     3,644     3,686     2,557
Real estate--
  construction ........      206       181       456       291       204
Real estate--
  mortgage ............    1,725     1,264     1,421     1,092     1,406
Home equity ...........    1,309       998     1,014     1,128     1,247
Personal ..............    2,155       685       753     1,007       998
Lease financing .......      128         1         3         7        18
                         -----------------------------------------------
Total Allowance
  for Loan Losses .....  $15,644   $10,569   $11,052   $11,224   $11,622
                         ===============================================

                               Percent of Loan Type to Total Loans
                         ----------------------------------------------
                           2004      2003       2002     2001      2000
                         ----------------------------------------------
Commercial,
  financial and
  agricultural ........    20.5%     14.1%     15.0%     16.3%     15.8%
Real estate--
  commercial ..........    37.7%     43.0%     37.6%     34.5%     30.5%
Real estate--
  construction ........     1.9%      2.2%      4.7%      2.7%      2.4%
Real estate--
  mortgage ............    20.9%     25.1%     25.0%     25.6%     27.5%
Home equity ...........    10.0%     11.5%     11.9%     12.1%     13.1%
Personal ..............     8.1%      4.1%      5.8%      8.7%     10.5%
Lease financing .......     0.9%      0.0%      0.0%      0.1%      0.2%
                         -----------------------------------------------
Total Allowance
  for Loan Losses .....   100.0%    100.0%    100.0%    100.0%    100.0%
                         ==============================================


                               Omega Financial Corporation 2004 Annual Report  7
<PAGE>

Investments

      Total  investments,  defined to include all interest earning assets except
loans  (i.e.  investment  securities  available  for  sale  (at  market  value),
investment  securities held to maturity,  federal funds sold,  interest  bearing
deposits and other interest earning assets) totaled $395,451,000 on December 31,
2004, representing an increase of $126,380,000 from year-end 2003. The following
table summarizes how the ending balances (in thousands) changed annually in each
of the last three years.

                                 2004         2003         2002
                               ----------------------------------
Purchases of investment
  securities ...............   $ 112,733    $ 100,432    $ 82,010
Sales and maturities of
  investment securities ....    (234,148)    (106,383)    (99,289)
Investments acquired
  through acquisition of Sun     213,391
Adjustment in market value
  of AFS securities ........      (2,590)      (3,162)      3,544
Amortization/Accretion .....      (1,946)      (1,856)     (1,415)
Federal funds sold,
  net change ...............      18,500      (16,050)     19,450
Interest bearing
  deposits acquired ........       2,322           --          --
Interest bearing deposits
  with others, net change ..      18,118        1,925     (23,055)
                               ----------------------------------
                               $ 126,380    $ (25,094)   $(18,755)
                               ==================================

      On average,  investments increased by $35,117,000,  or 13.0%, during 2004,
after decreasing by $19,885,000,  or 9.2%, during 2003. The increase in 2004 was
primarily  the  result  of the Sun  acquisition.  The  sale  and  maturities  of
investment  securities includes  $115,646,000 of agency securities acquired with
the Sun portfolio. These securities were sold in the fourth quarter of 2004 with
the  proceeds  used to repay FHLB  borrowings.  Therefore,  the Sun  transaction
accounted for  $100,066,000  of Omega's  $126,380,000  increase,  or 79.2%.  The
investment  portfolio is used to invest funds available that exceed loan demand,
and the  decrease  in  investments  relates  directly  to the decline in deposit
balances.

      The  investment  area  is  managed  according  to  internally  established
guidelines and quality  standards.  Omega  segregates its investment  securities
portfolio into two  classifications:  those held to maturity and those available
for sale. Omega classifies all marketable investment securities as available for
sale, and currently holds no securities in the held to maturity  classification.
At  December  31,  2004,  the market  value of the entire  securities  portfolio
exceeded  amortized  cost by  $5,424,000  as compared to December  31, 2003 when
market value was greater than amortized cost by $8,013,000. The weighted average
maturity of the investment portfolio was 2 years and 6 months as of December 31,
2004 as compared to 1 year and 8 months at the end of 2003. The weighted average
maturity,  even though it was lengthened  when the Sun securities  portfolio was
added,  has  remained  short in order to achieve a desired  level of  liquidity.
Table 4 (located on page 9) shows the  remaining  maturity or earliest  possible
repricing for investment securities.

Non-Interest Earning Assets

      Non-interest earning assets on average increased $60,226,000, or 69.7% in
2004, and decreased $717,000, or 0.8% in 2003. The following table summarizes
the components of the non-interest earning asset category, and how the ending
balances (in thousands) changed annually in each of the last three years. The
increase of $279,369,000 in 2004 was the result of the Sun transaction. The
increase in premises and equipment of $20,980,000 is primarily the result of
Sun's 23 branches. The $1,789,000 reduction from other activity in 2004 is due
to depreciation and the reclassification to Other Real Estate Owned of Sun's
administration center in the amount of $1,633,000 as a result of Omega making it
available for sale. Other changes of particular importance are the intangible
assets and goodwill. The $17,077,000 of intangibles acquired as a result of the
Sun merger consist of the core deposit intangible, estimated to be $14,210,000,
and customer relationships and Mid Penn Insurance Associates and Sentry Trust
Company trade names, estimated to be $2,866,000. Please refer to the "Financial
Condition" section of this discussion for a summary regarding the determination
of the goodwill balance.

<TABLE>
<CAPTION>
                                                      2004        2004
                                           2004     Acquired      Other
                                           Total    Balances    Activities     2003       2002
                                         ------------------------------------------------------
<S>                                      <C>        <C>          <C>         <C>        <C>
Cash and due from banks ..............   $ 15,457   $  20,510    $ (5,053)   $(3,629)   $(3,023)
Premises and equipment, net ..........     20,980      31,499     (10,519)      (371)      (844)
Other real estate owned ..............      2,341         396       1,945        512        (45)
Bank-owned life insurance ............     35,711      34,129       1,582      5,395      1,523
Investment in limited partnerships ...      8,605       8,580          25         --         --
Intangible assets ....................     16,676      17,077        (401)       (10)       (10)
Goodwill .............................    156,959     156,959          --         --         --
Other receivables and prepaid expenses     22,640      20,183       2,457         (2)    (2,555)
                                         ------------------------------------------------------
                                         $279,369   $ 289,333    $ (9,964)   $ 1,895    $(4,954)
                                         ======================================================
</TABLE>


8
<PAGE>

Deposits

      For the year 2004, total deposits  increased  $594,502,000.  From year-end
2002 to year-end 2003,  total deposits  decreased by $11,675,000.  The following
table summarizes how the ending balances (in thousands) changed annually in each
of the last three years.

<TABLE>
<CAPTION>
                                                   2004         2004
                                       2004      Acquired       Other
                                       Total     Balances    Activities     2003        2002
                                      --------------------------------------------------------
<S>                                   <C>        <C>          <C>         <C>         <C>
Demand deposits ...................   $ 72,706   $  69,540    $  3,166    $  7,204    $ 10,065
Interest bearing demand deposits ..    191,456     207,794     (16,338)      8,897      18,501
Savings deposits ..................     85,780      84,524       1,256       9,647      13,102
Time deposits, $100,000 and greater     52,383      62,231      (9,848)     (9,254)    (16,758)
Time deposits, other ..............    192,177     212,601     (20,424)    (28,169)    (37,322)
                                      --------------------------------------------------------
                                      $594,502   $ 636,690    $(42,188)   $(11,675)   $(12,421)
                                      ========================================================
</TABLE>

      Average deposits  increased  $152,052,000,  or 16.7% to  $1,065,230,000 in
2004 as compared to a decrease in 2003 of $7,874,000,  or 0.9% to  $913,178,000.
The acquisition of Sun accounted for new deposits of $636,690,000;  however,  by
year-end  these  balances had declined by  $38,730,000  to  $597,945,000  due to
anticipated  run off.  This  initial  loss of  deposits  was the result of Omega
instituting  more market oriented  pricing.  The losses from Sun's accounts were
$4,899,000 in demand  accounts,  $9,148,000 in interest bearing demand accounts,
$5,180,000 in savings  deposits and  $19,503,000  in all time deposit  accounts.
Even with this reduction in deposits, Sun contributed approximately $149,500,000
of the increase in average deposits for the year. In the past several years, the
banking  industry in general has  experienced  limited deposit growth because of
competition  in the  marketplace  provided by mutual funds and other  investment
options that directly compete with traditional banking products. In keeping with
our desire to provide our customers a full array of financial  services  "within
our own walls," we supplemented the services  traditionally offered by our Trust
Department,   by  staffing  our  community   offices  with  financial   services
consultants and  representatives  that are licensed and trained to sell variable
and fixed rate annuities, mutual funds, stock brokerage services, long-term care
insurance  and other life  products.  Although  the sale of these  products  can
reduce the Bank's deposit levels, we have been rewarded with satisfied customers
and significant increases in non-interest fee income.

      Of course, our customers still require the comfort of insured deposits and
local  familiarity  that our bank  continues  to offer,  and this is the primary
consideration for the majority of our investors.  Throughout the recent low rate
environment,  many have chosen to shift  their funds to more liquid  transaction
accounts  from time  deposits.  We  believe  that when  rates  rise and are more
attractive to these depositors, they will again lock in rates for specific terms
in the various time deposit products. As reflected in Table 4, the trend in 2004
was the same as 2003 in that the  customer  was  holding  more of their funds in
core  accounts  and  less in time  deposits.  Average  core  accounts  increased
$111,484,000; of this Sun added $86,010,000, and average time deposits increased
$40,568,000,  of which Sun added $63,490,000,  leaving Omega with an increase of
$25,474,000 in core accounts and a decrease of $22,922,000 in time deposits.  In
2003, on average,  core deposits  increased by  $38,198,000  while time deposits
decreased by $46,072,000.  As interest rates started to rise in 2004, this trend
slowed and is anticipated  that as rates move higher the customer will choose to
invest in time deposits and reduce their holdings in core accounts.

      The  following  table shows the  comparison  of average core  deposits and
average  time  deposits as a percentage  of total  deposits for each of the last
three years.

                                     Table 4
                               Changes in Deposits
                                ($ in thousands)

<TABLE>
<CAPTION>
                                         2004      Increase (Decrease)      2003      Increase (Decrease)          2002
                                       Average     -------------------    Average    ---------------------       Average
                                       Balance       Amount        %      Balance     Amount          %           Balance
                                      -----------------------------------------------------------------------------------
<S>                                   <C>          <C>            <C>     <C>        <C>              <C>        <C>
Interest bearing demand deposits ..   $  343,527   $ 56,397       19.6%   $287,130   $ 17,520          6.5%      $269,610
Savings deposits ..................      159,776     29,651       22.8     130,125     11,796         10.0        118,329
Demand deposits ...................      172,721     25,436       17.3     147,285      8,882          6.4        138,403
                                      -----------------------------------------------------------------------------------
  Total core (transaction) accounts      676,024    111,484       19.7     564,540     38,198          7.3        526,342
Time deposits, $100,000 and greater       60,167      6,380       11.9      53,787    (15,572)       (22.5)        69,359
Time deposits, other ..............      329,039     34,188       11.6     294,851    (30,500)        (9.4)       325,351
                                      -----------------------------------------------------------------------------------
  Total time deposits .............      389,206     40,568       11.6     348,638    (46,072)       (11.7)       394,710
                                      -----------------------------------------------------------------------------------
   Total deposits .................   $1,065,230   $152,052       16.7%   $913,178   $ (7,874)        (0.9)%     $921,052
                                      ===================================================================================
</TABLE>


                               Omega Financial Corporation 2004 Annual Report  9
<PAGE>

Other Interest Bearing Liabilities

      Omega's  average  balances for  repurchase  agreements  and other borrowed
funds increased  $50,152,000 of which approximately  $42,000,000 was a result of
the  Sun  merger.   Sun  brought  with  it  interest   bearing   liabilities  of
$323,169,000.  The make up of this debt was  $267,142,000  in Federal  Home Loan
Bank long-term debt,  $21,858,000 of subordinated  debentures and $35,826,000 of
short-term  borrowings.   During  the  fourth  quarter,   management  started  a
systematic  program of reducing the leverage of Sun's -balance sheet through the
sale of certain of Sun's  assets and the paydown of the  longer-term  debt.  The
Federal Home Loan Bank debt of $210,620,000 and other subordinated debentures in
the  amount of  $1,656,000  for a total of  $212,276,000  were paid off prior to
maturity.  To pay for this reduction in long-term debt, Omega sold  $115,646,000
of  Sun's  longer  term  Agency  securities  and an  auto  lease  portfolio  for
$87,269,000.  In February  2005, the final early  extinguishment  of the Federal
Home Bank Debt of $55,032,000  was  accomplished  through the sale of investment
securities  in the  amount of  $35,492,000.  Gains  were  realized  on the early
extinguishment  of the  debt in 2004 of  $570,000  and  gains of  $652,000  were
realized on the security sales.  These gains were realized due to rate movements
and yield curve shifts since  October 1, 2004 when the  balances  were  acquired
through  the Sun  merger.  Gains  recognized  in the first  quarter of 2005 were
$1,043,000 and $257,000 on the early  extinguishment of the debt and the sale of
investment securities,  respectively.  Omega benefited from the rise of mid-term
rates while the long bond rate  declined.  In addition,  in the fourth  quarter,
Omega  incurred  additional  borrowings  to help pay for the  restructuring  and
merger related costs.  These borrowings  amounted to $10,000,000 of a short-term
demand note and a seven-year term loan of $12,000,000. In 2003, average balances
of repurchase  agreements and other borrowed funds  decreased by $932,000.  (See
Note 11 of Notes to Consolidated Financial Statements).

Shareholders' Equity

      During 2004, total  shareholders'  equity increased by $148,300,000.  This
increase was primarily the result of Omega's acquisition of Sun that resulted in
4,117,116  shares  being  issued at a value of $34.52 per share.  The  following
table summarizes how the components of equity (in thousands) changed annually in
each of the last three years.

                               2004         2003        2002
                             ---------------------------------
Net income ...............   $  17,021    $ 17,185    $ 18,179
Dividends ................     (11,388)     (9,879)     (9,623)
Stock options exercised ..       2,427       2,389)      3,470
Repurchase of stock ......      (2,488)     (2,886)     (9,207)
Net change in unrealized
  security gains .........      (1,683)     (2,034)      2,300
Acquisition of Sun Bancorp     143,975*         --          --
Other ....................         436         554         741
                             ---------------------------------
                             $ 148,300    $  5,329    $  5,860
                             =================================

*     Equity recorded from the acquisition of Sun was the fair value of assets
      acquired of $137,729,000 less cash paid of $43,754,000.

      Shareholders'  equity  continued to be an important  funding source during
2004,  providing  an  average  balance  of  $191,512,000,  as  compared  to  the
$166,469,000  provided in 2003.  Dividend payout ratios on the common stock were
66.91% for 2004,  55.8% for 2003 and 50.8% for 2002.  Capital has been increased
as a result of employee stock options and purchase  plans.  Other  comprehensive
income arising from  unrealized  gains (net of tax) on securities  available for
sale  increased  average  equity by $3,935,000  in 2004,  $1,098,000 in 2003 and
$1,992,000 in 2002. At December 31, 2003,  Omega held 1,589,545  shares of stock
in treasury at a cost of  $48,439,000 as compared to 1,507,298 in 2002 at a cost
of  $45,643,000.  These  increases  are a result of the Omega  stock  repurchase
program  in effect  during  2002 and 2003 (see Note 12 of Notes to  Consolidated
Financial Statements). At the end of 2004 there were no shares in treasury as it
was all utilized in the Sun acquisition.

      Omega  increased  the return to  shareholders  in 2004 by  increasing  its
dividend  2.6% to $1.20 per common  share.  Per share common  dividends in prior
years were $1.17 and $1.13 in 2003 and 2002, respectively. Omega paid a dividend
per  preferred  share  of $1.35 in 2003 and  $1.80  in 2002.  The  reduction  in
preferred  dividends in 2003 was the result of the conversion of preferred stock
to  common  stock  in the  fourth  quarter  of  2003.  (See  Note 20 of Notes to
Consolidated  Financial  Statements  regarding  restrictions  on dividends  from
subsidiary banks to the holding company.)

      Omega's  book  value per share at  December  31,  2004 was $25.07 and on a
tangible book basis it was $11.28.  The tangible book value is the result of the
$173,685,000 or $13.79 per share of goodwill and intangible assets that resulted
from the Sun  merger.  The 2003 and 2002  book  value  was  $19.79  and  $19.63,
respectively. Intangible assets for 2003 and 2002 were immaterial.

      Federal banking regulators have established capital adequacy  requirements
for  banks  based on risk  factors.  All banks and bank  holding  companies  are
required to have a minimum of 4% of risk  adjusted  assets in Tier I capital and
8% of risk adjusted assets in Total capital (Tier I and Tier II capital).  As of
December 31, 2004 and 2003,  Omega's  Tier I capital  ratio was 13.3% and 21.0%,
respectively,  and its Total  capital  ratio was 14.4% and 22.3%,  respectively.
Additionally,  banking  organizations  must maintain a minimum Tier I capital to
total average asset  (leverage) ratio of 3%. This 3% leverage ratio is a minimum
for the top-rated banking  organizations  without any supervisory,  financial or
operational weaknesses or deficiencies. Other banking organizations are required
to maintain  leverage  capital  ratios 100 to 200 basis points above the minimum
depending on their financial  condition.  At December 31, 2004 and 2003, Omega's
leverage ratio was 13.4% and 14.2%,  respectively,  against a required  leverage
ratio of 4% (see Note 20 of Notes to the Consolidated Financial Statements).

      Omega's equity to assets ratio for 2004, 2003 and 2002 was 15.16%,  14.69%
and 14.04%, respectively.


10
<PAGE>

MARKET RISK

      Market risk is the risk of loss  arising from changes in the fair value of
financial instruments due to changes in interest rates, currency exchange rates,
commodity  prices or equity prices.  The  Corporation's  market risk is composed
primarily of interest  rate risk.  The process by which  financial  institutions
manage  their  interest  rate risk is called  asset/liability  management.  This
process has become very  important in an industry  undergoing  an  ever-changing
interest rate environment.  The goals of Omega's asset/liability  management are
increasing  net  interest  income  without  taking undue  interest  rate risk or
material  loss of net market  value of its equity,  while  maintaining  adequate
liquidity.  Net interest income is increased by widening the interest spread and
increasing  earning  assets.  Liquidity  is measured by the ability to meet both
depositors' and credit customers' requirements.

Net Interest Income and Interest Rate Risk

      Omega  believes  that it has managed  interest  rate risk while  achieving
optimal  levels of net interest  income.  Interest  rate risk is the risk to net
interest income or capital  arising from movements of interest rates.  There are
several  components  of  interest  rate  risk:  repricing  risk,  basis risk and
customer  option risk. The two  methodologies  used by the Corporation to aid in
the  management of interest rate risk are gap analysis and economic  simulation.
Gap analysis is a tool used by the  Corporation  primarily to measure  repricing
risk while  economic  simulation is used to measure and manage  repricing  risk,
basis risk and customer option risk.

      Both tools, gap analysis and economic simulations, are performed in a
static environment. In reality, Omega's balance sheet is dynamic and in constant
change as are interest rates. Management applies the same techniques using
projected future volumes and various interest rate scenarios to analyze
potential hedging decisions or decisions that involve the acquisition or
investment of funds.

      Economic  simulation  involves  management  simulating  possible  economic
conditions  and interest  rate  scenarios in order to quantify the impact on net
interest  income.  The effect that  changing  interest  rates has on Omega's net
interest  income is simulated by moving  interest rates up and down at 100 basis
point increments. This simulation is known as rate shocks.

      As the  table  below  indicates,  based  on rate  shock  simulations,  the
Corporation  is exposed to a loss of income if interest rates fall. For example,
net  interest  income  at risk for a 100  basis  point  decrease  in rates as of
December 31, 2004 was $2,658,000,  or 4.09%, of net interest income, compared to
$1,541,000,  or 3.91%,  of net interest  income at risk as of December 31, 2003.
Omega's rate risk  policies  provide for maximum  limits on net interest  income
that can be at risk for 100 through 300 basis point changes in interest rates.

               Effect of Interest Rate Risk on Net Interest Income
                                ($ in thousands)

                                                      Change        Total Change
   Change in          Change           Change         Due to           Due to
Interest Rates        Due to           Due to        Customer         Interest
(Basis Points)    Repricing Risk     Basis Risk       Options        Rate Risk
--------------------------------------------------------------------------------
     300              $ 2,499         $ 5,513         $   55           $ 8,067
     200                1,673           3,712             37             5,422
     100                  863           1,860             20             2,743
       0                    0               0              0                 0
    -100                 (730)         (1,860)           (68)           (2,658)
    -200               (1,580)         (3,717)          (123)           (5,420)
    -300               (1,713)         (6,956)          (201)           (8,870)

      Omega's  interest rate risk position is directly related to the preference
of our customers  for fixed rate loans and  shorter-term  deposits.  If customer
preferences  change, the same effects could be obtained by changing  investment,
lending,  funding or pricing strategies;  however, these strategies could reduce
liquidity or require maintaining additional capital.

      In addition to determining  the impact on net interest income from various
interest rate changes, the same analysis is applied to determine the change that
interest rate movements would have on Omega's market value of equity (MVE).  The
MVE provides an indicator of economic value and is computed by  discounting  all
contractual  future cash flows at current market rates. The effect that changing
interest  rates has on Omega's MVE is simulated by moving  interest rates up and
down at 100 basis point  increments.  This provides  management with information
necessary  to  analyze  long-term  interest  rate  risk.  Management  can  limit
long-term  interest rate risk,  but it is generally at the expense of short-term
earnings,  which can cause more  volatility  in the short term.  At December 31,
2004,  Omega's MVE was within the  guidelines  established by management and the
Board of  Directors.  The table  below  summarizes  the  results of rate  shocks
showing the effect that  interest  rate risk has on market value of equity as of
December 31, 2004.

             Effect of Interest Rate Risk on Market Value of Equity
                                ($ in thousands)

                                                     Change        Total Change
   Change in          Change         Change          Due to           Due to
Interest Rates        Due to         Due to         Customer         Interest
(Basis Points)    Repricing Risk   Basis Risk        Options         Rate Risk
--------------------------------------------------------------------------------
     300            $(35,576)       $ 31,400       $   5,487          $ 1,311
     200             (24,374)         21,739           3,967            1,332
     100             (12,292)         11,291           2,152            1,151
       0                   0               0               0                0
    -100              14,956         (12,192)         (5,800)          (3,036)
    -200              30,389         (25,343)        (11,230)          (6,184)
    -300              47,233         (38,813)        (17,978)          (9,558)


                              Omega Financial Corporation 2004 Annual Report  11
<PAGE>

Repricing Risk

      Repricing risk arises from differences  between the timing of rate changes
and the timing of cash flows that occur in the  pricing  and  maturity of assets
and liabilities. The static gap analysis is one of the tools used to measure and
manage repricing risk. By managing gap,  fluctuations in net interest income can
be minimized,  thereby achieving consistent growth in net interest income during
periods of  changing  interest  rates.  Table 5 shows the period and  cumulative
static gaps for various time intervals as of December 31, 2004. The data in this
table is based upon the earliest possible repricing dates or maturity, whichever
comes first. Core deposit accounts,  defined as interest bearing demand deposits
and certain  savings  accounts are considered to have repricing  implications of
various  intervals between one month and five years. The gap analysis is used as
an indicator of what may happen to net interest income if interest rates rise or
fall. On a cumulative basis, over the next twelve months, Omega is in a negative
gap position of $59,440,000 at December 31, 2004, indicating less earning assets
than interest bearing  liabilities will reprice during that period.  As a result
of the low interest rate environment of the past several years, the level of our
gap and interest rate risk  positions has been affected by both the extension of
our loan portfolio, which reflects our customers preference for fixed rates, and
the shortening of our deposit base as customers  continue to prefer  transaction
accounts  or  shorter  term  certificates.  As we move  into a period  of rising
interest rates, it is expected that our gap and interest rate risk position will
be most  affected by the likely  lengthening  of our  customer  deposit  base as
customers  may be more  willing  to move  funds from  transaction  accounts  and
short-term certificates into higher paying longer term certificates of deposits.

      As of December 31, 2004,  should  interest  rates rise by 100 basis points
immediately  and Omega's  balances do not grow and the mix does not change,  our
analysis  suggests  that  repricing  risk  would  cause net  interest  income to
increase  over the next twelve  months by  approximately  $863,000.  If interest
rates would decline by 100 basis points immediately,  repricing risk would cause
net interest income to decrease by  approximately  $730,000 over the next twelve
months.

      Omega's management cannot predict the direction of interest rates nor will
the product mix remain  unchanged,  yet management uses this information to help
formulate  strategies to minimize any unfavorable  effect on net interest income
as a result of interest rate changes. As an example, at December 31, 2004, Omega
was in the process of selling  $22,500,000 in long-term  fixed rate  residential
mortgages  to a third party in order to  decrease  repricing  risk.  Also during
2004,  Omega reduced  repricing  risk by liquidating  $116,000,000  in long-term
investment  securities and paid off $196,500,000 in Federal Home Loan Bank debt,
both of which were obtained in the acquisition of Sun Bancorp.

Basis Risk

      Basis risk is another  source of  interest  rate risk and arises  from the
difference  in  movements  of interest  rates  earned on assets and the interest
rates paid on liabilities with otherwise similar repricing characteristics.  The
Corporation  analyzed the effects of basis risk on both net interest  income and
MVE. This was done through interest rate shocks, which isolated the movements of
the prime rate and treasury rates. The following shows the results of these rate
shocks.

                   Effect of Basis Risk on Net Interest Income
                                ($ in thousands)

                     Change in              Change in               Change in
   Change in        Net Interest          Net Interest            Net Interest
Interest Rates     Income Due to          Income Due to           Income Due to
(Basis Points)    Prime Basis Risk     Treasury Basis Risk      Total Basis Risk
--------------------------------------------------------------------------------
     300              $ 13,082              $(7,569)                $ 5,513
     200                 8,721               (5,009)                  3,712
     100                 4,361               (2,501)                  1,860
       0                     0                    0                       0
    -100                (4,361)               2,501                  (1,860)
    -200                (8,721)               5,004                  (3,717)
    -300               (13,082)               6,126                  (6,956)

      The table  above  indicates  the  results  of changes in the prime rate or
treasury rates,  keeping all other interest rates  unchanged.  If the prime rate
would increase by 100 basis points, and all other rates remained unchanged, this
analysis  suggests that the  Corporation's net interest income would increase by
approximately   $4,361,000   and  market  value  of  equity  would  decrease  by
approximately $6,739,000. The Corporation's prime basis risk has stabilized over
the last several years as a result of customer  preference  for fixed rate loans
and the fact that the Corporation has  increasingly  indexed variable rate loans
to rates other than the prime rate.  If all points on the  treasury  curve would
increase 100 basis points and all other rates remained unchanged,  this analysis
suggests that the Corporation's net interest income would decrease approximately
$2,501,000 and market value of equity would increase approximately  $18,030,000.
This change can be attributed to the fact that most deposit rates are indexed to
the treasury  curve;  therefore,  an increase in treasury  rates would  increase
interest expense more than interest income.

                 Effect of Basis Risk on Market Value of Equity
                                ($ in thousands)

                      Change in              Change in             Change in
   Change in         Market Value          Market Value          Market Value
Interest Rates          Due to                Due to                Due to
(Basis Points)     Prime Basis Risk     Treasury Basis Risk    Total Basis Risk
--------------------------------------------------------------------------------
     300               $(19,497)             $ 50,897              $ 31,400
     200                (13,233)               34,972                21,739
     100                 (6,739)               18,030                11,291
       0                      0                     0                     0
    -100                  7,000               (19,192)              (12,192)
    -200                 14,281               (39,624)              (25,343)
    -300                 21,860               (60,673)              (38,813)

Customer Option Risk

      Customer  option risk  arises  when a customer  has the right to alter the
level and timing of cash flows of an asset or liability.  Prepayment  options on
loans and early  withdrawal  of  deposits  are two of the most  common  types of
customer options. In a rising rate environment,  the Corporation's interest rate
risk is  increased as  customers  transfer  deposits  from  products  with lower
interest rates to accounts or other products that offer higher  interest  rates.
In a declining rate environment, the Corporation's interest rate risk is


12
<PAGE>

increased  when a  customer  prepays or  refinances  their loan in order to take
advantage of the lower rate environment. The Corporation analyzed the effects of
customer  options on net interest  income and MVE by using  interest rate shocks
that include the effect of  estimated  prepayments  on our  mortgage  portfolio.
Prepayment  levels  are  dependent  on several  factors  including  the  current
interest  rate  environment,  the  interest  rate on the  loan as well as  other
contractual  provisions of the loan.  Mortgage prepayment levels were determined
by using  estimated  prepayments  of  mortgage-backed  securities  with  similar
maturity and rate characteristics.  This analysis suggests that customer options
resulting  from a 100 basis point  decrease  in  interest  rates would cause net
interest  income to  decrease  $68,000  and market  value of equity to  decrease
$5,800,000.

Liquidity

      Liquidity  represents  the  Corporation's   ability  to  efficiently  meet
commitments  to fund  loans,  purchase  securities  and repay  deposits or other
liabilities.

      There is no standardized  formula for measuring liquidity.  Therefore,  in
order to assess the adequacy of the Corporation's liquidity position,  Omega has
adopted a liquidity measurement that answers the following three questions:

1.  How much cash is on hand and can be raised over the next 30 days without any
    principal loss on the assets?

2.  If adverse  publicity  was released  about the industry or the  Corporation,
    what is the ability of Omega to meet deposi-tor needs?

3.  What are the funding requirements through the next 90 days?

      When measuring  liquidity,  total liquid assets must be determined.  Total
liquid assets  includes cash on hand,  federal funds sold,  market value of U.S.
Treasury  and Agency  securities  not  pledged,  loans that could be sold within
thirty days,  cash from  investment  or loan  maturities  within 30 days and any
other readily marketable assets.

      Total short-term liabilities must also be determined to measure liquidity.
Total  short-term  liabilities  include  federal  funds  purchased,   repurchase
agreements,  certificates of deposit over $100,000 scheduled to mature within 30
days, and an estimated amount of retail deposit withdrawals.

      The  short-term  liabilities  are  deducted  from  the  liquid  assets  to
determine  a surplus or deficit  and the  percentage  of liquid  assets to total
assets  is  determined.   At  December  31,  2004,   total  liquid  assets  were
$282,972,000  while the short-term  liabilities were  $109,020,000.  This left a
surplus of liquid assets of $173,952,000, or 8.7%, of total assets.

      Management  believes  that  a  surplus  of 5% or  more  is  adequate.  The
Corporation   actively  manages  liquidity  at  this  level  and  has  developed
reasonable liquidity contingency plans, including ensuring available alternative
funding  sources to  maintain  adequate  liquidity  under a variety of  business
conditions.

      The investment  portfolio,  due to its relatively  short average life, has
the  ability to provide  additional  liquidity  if  necessary.  When  developing
investment  strategies,  the Corporation considers runoff of assets and expected
future funding needs.

      If  required  due to  unforeseen  circumstances,  Omega has the ability to
increase  its  liquidity  through  the  sale  of  assets,   primarily  financial
instruments.  Most of Omega's  financial assets at December 31, 2004 have a fair
value  in  excess  of  their  aggregate  book  value;  therefore,  some of these
instruments could be sold if needed for liquidity  purposes and their sale would
not negatively affect current earnings or capital.

      In  addition,  liquidity  can  also be  provided  from  off-balance  sheet
sources.  At December 31, 2004, Omega had unsecured federal funds lines totaling
$25,000,000. At December 31, 2004, Omega had no amount outstanding against these
federal funds lines. Another source of liquidity is the Federal Reserve Discount
Window.  Omega is able to borrow up to 90% of the amount of collateral  pledged,
which as of December 31, 2004  provided  $8,299,000 in borrowing  capacity.  The
Corporation  does not  consider  either  of these  to be a source  of  long-term
liquidity; rather they are used to cover short-term fluctuations in liquidity.

      The  Corporation  is  also a  member  of the  Federal  Home  Loan  Bank of
Pittsburgh  (FHLB),  which provides overnight or term funding to the bank with a
borrowing  limit of  $169,844,000.  This borrowing limit could be increased to a
maximum amount of $653,176,000 with the purchase of additional FHLB stock. These
borrowings are secured by investment  securities and first mortgage  residential
real estate loans. At December 31, 2004,  Omega had  $92,526,000  outstanding in
term loans and no overnight advances.

      The  Corporation's  primary source of long-term  liquidity is a large core
deposit base and a strong capital position.  Another measure of liquidity is the
average  loan to deposit  ratio.  This ratio was 87.4% at December  31, 2004 and
85.7% at December 31, 2003.  Management's  target range for this ratio is 70% to
85%. Management believes that Omega has a relatively stable deposit base with no
major seasonal depositor or group of depositors.  However, management recognizes
that a  significant  risk to  liquidity  is the  level and mix of  deposits.  We
believe that due to market and interest rate  uncertainties  throughout the past
year,  customers have shifted funds from the stock market,  longer-term deposits
and  other  alternative  investments,  into  the  safety  of core  accounts  and
short-term  certificates.  Management  has estimated the unusual  growth in core
accounts to be $67,201,000 and recognizes that it provides additional  liquidity
risk. Increases in interest rates,  improved economic activity and confidence in
the stock market may result in  depositors  shifting  funds back to  longer-term
deposits,  the stock market,  or other  alternative  investments.  This shift by
depositors would require the Corporation to replace those funds with higher cost
borrowings in the future.


                              Omega Financial Corporation 2004 Annual Report  13
<PAGE>

Off-Balance Sheet Arrangements, Contractual Obligations and Commitments

      Off-Balance Sheet  Arrangements--The  Corporation has numerous off-balance
sheet loan  obligations  that exist in order to meet the financing  needs of its
customers  and to reduce its own  exposure to  fluctuations  in interest  rates.
These financial  instruments include commitments to extend credit,  unused lines
of credit as well as standby  letters of credit.  Because many  commitments  are
expected to expire without being drawn upon, the total commitment amounts do not
necessarily  represent future cash requirements.  These instruments  involve, to
varying  degrees,  elements  of  credit  and  interest  rate  risk  that are not
recognized in the consolidated  financial  statements.  The Corporation does not
expect  that  these  commitments  will have an adverse  affect on its  liquidity
position.

      Exposure to credit loss in the event of non-performance by the other party
to the  financial  instrument  for  commitments  to extend  credit and financial
guarantees  written is represented by the  contractual  notional amount of those
instruments.  The  Corporation  uses the same credit  policies  in making  these
commitments  as it  does  for  on-balance  sheet  instruments.  The  Corporation
controls  the  credit  risk  of its  financial  options  and  interest  exchange
agreements through credit approvals, limits and monitoring procedures;  however,
it does not generally  require  collateral for such financial  instruments since
there is no principal credit risk.

      The Corporation had outstanding loan origination  commitments  aggregating
$82,829,000  and  $51,218,000  at December 31, 2004 and 2003,  respectively.  In
addition,  the  Corporation had  $205,524,000  and  $120,034,000  outstanding in
unused  lines of credit  commitments  extended to its  customers at December 31,
2004 and 2003, respectively.

      Standby letters of credit are instruments  issued by the Corporation  that
guarantee  the  beneficiary  payment  by the bank in the event of default by the
Corporation's  customer in the non-performance of an obligation or service. Most
standby  letters of credit are  extended for one year  periods.  The credit risk
involved in issuing  letters of credit is essentially  the same as that involved
in extending loan  facilities to customers.  The  Corporation  holds  collateral
supporting  those  commitments  for which  collateral  is deemed  necessary.  At
December 31, 2004 and 2003,  standby  letters of credit  issued and  outstanding
amounted to $24,064,000 and $13,118,000, respectively. The liability recorded in
accordance  with  FASB  Interpretation  No.   45--"Guarantor's   Accounting  and
Disclosure  Requirements  for  Guarantees,   Including  Indirect  Guarantees  of
Indebtedness of  Others"--representing  fair market value of the standby letters
of credit at December  31, 2004 and  December 31, 2003 was $138,000 and $72,000,
respectively.

      Contractual  Obligations--Presented below, are the significant contractual
obligations of the Corporation as of December 31, 2004, in thousands of dollars.
Further  discussion  of  the  nature  of  each  obligation  is  included  in the
referenced note to the consolidated financial statements.

<TABLE>
<CAPTION>
                                                                                Payments Due by Period
                                                                   -----------------------------------------------
                                                                                 One to
                                            Note                   Less than     Three      Three to     More than
                                         Reference      Total       One Year     Years     Five Years   Five Years
                                         -------------------------------------------------------------------------
<S>                                          <C>      <C>          <C>          <C>        <C>          <C>
Certificates of deposits(a) ..........       10       $  601,454   $  308,588   $233,629   $   53,956   $    5,281
Other deposits(b) ....................                   925,179      925,179         --           --           --
Other interest-bearing liabilities(a)                        854           31         62           62          699
Federal funds borrowed and security
  repurchase agreements(a) ...........       11           63,541       63,541         --           --           --
Borrowed funds(a) ....................       11           26,744       26,744         --           --           --
Junior subordinated debentures(a) ....       12          165,617        3,955      7,909        7,909      145,844
Long-term debt(a) ....................       11          190,365        8,544     36,876      135,257        9,688
Operating lease obligations ..........       13            2,354          527        751          405          671
Supplemental executive retirement plan       19            3,100          242        484          484        1,890
Purchase obligations
  3rd party data processor contract ..       23            9,792        2,448      4,896        2,448           --
                                                      ------------------------------------------------------------
  Total ..............................                $1,989,000   $1,339,799   $284,607   $  200,521   $  164,073
                                                      ============================================================
</TABLE>

(a)   Includes  interest  on both  fixed  and  variable  rate  obligations.  The
      interest  associated with variable rate obligations is based upon interest
      rates in effect at December 31, 2004. The  contractual  amounts to be paid
      on variable rate  obligations  are affected by changes in market  interest
      rates. Future changes in market interest rates could materially affect the
      contractual amounts to be paid.

(b)   Excludes interest.


14
<PAGE>

                                     Table 5
                  Maturity Distribution as of December 31, 2004
                                 (In thousands)

                 Remaining Maturity/Earliest Possible Repricing

<TABLE>
<CAPTION>
                                                                    Over Three    Over Six     Over One
                                                          Three     Months But   Months But    Year But     Over
                                                         Months     Within Six     Within       Within      Five
                                                         or Less      Months      One Year    Five Years   Years       Total
                                                        -----------------------------------------------------------------------
<S>                                                     <C>          <C>          <C>          <C>        <C>        <C>
Interest Earning Assets
   Interest bearing deposits ........................   $  31,122    $      --    $      --    $     --   $     --   $   31,122
   Federal funds sold ...............................      36,350           --           --          --         --       36,350
   Investment securities:
    U.S. Treasury securities and obligations of other
     U.S. Government agencies and corporations ......       2,008        2,034        3,014     125,874         --      132,930
    Obligations of state and political subdivisions .       7,589       11,200       12,694      43,824      5,612       80,919
    Corporate and other securities ..................         647          199          398       2,090        700        4,034
    Mortgage-backed securities ......................       3,901        3,946        8,009      64,294      7,531       87,681
    Stocks ..........................................          --           --           --          --     22,415       22,415
    Investment in unconsolidated subsidiary .........          --           --           --       1,114        511        1,625
  Loans:
    Commercial, financial, and agricultural .........     170,112       12,058       23,894      62,553      3,033      271,650
    Real estate--commercial .........................     182,190       18,567       54,564     230,872     15,201      501,394
    Real estate--construction .......................      24,979          117          205          --         --       25,301
    Real estate--mortgage ...........................      17,671       11,272       23,930     114,198    110,137      277,208
    Home equity .....................................      69,269        3,201        5,893      34,982     19,732      133,077
    Personal (net of unearned discount) .............      30,793        7,094       14,320      54,230      1,346      107,783
    Lease financing (net of unearned interest) ......       1,337          930        1,848       7,722         --       11,837
                                                        -----------------------------------------------------------------------
Total Interest Earning Assets .......................     577,968       70,618      148,769     741,753    186,218    1,725,326
                                                        -----------------------------------------------------------------------
Interest Bearing Liabilities
    Demand deposits .................................     123,227        5,344       12,535     228,643         --      369,749
    Savings deposits ................................     190,833        7,487       52,051      76,652         --      327,023
    Certificates of deposit over $100,000 ...........      27,655       10,878       15,347      49,457        135      103,472
    Time deposits ...................................      99,850       67,243       84,176     221,234        927      473,430
    Short-term borrowings ...........................      88,246        2,004            9          --         --       90,259
    Junior subordinated debt ........................         125          125          249      39,108     17,583       57,190
    Long-term debt ..................................      67,599          314          644      29,497      1,525       99,579
    Other interest bearing liabilities ..............         854           --           --          --         --          854
                                                        -----------------------------------------------------------------------
Total Interest Bearing Liabilities ..................     598,389       93,395      165,011     644,591     20,170    1,521,556
                                                        -----------------------------------------------------------------------
Gap .................................................   $ (20,421)   $ (22,777)   $ (16,242)   $ 97,162   $166,048   $  203,770
                                                        =======================================================================
Cumulative Gap ......................................   $ (20,421)   $ (43,198)   $ (59,440)   $ 37,722   $203,770
                                                        ==========================================================
Cumulative sensitivity ratio ........................        0.97         0.94         0.93        1.03       1.13

Commercial, financial and agricultural
   loans maturing after one year with:
    Fixed interest rates ............................                                          $ 28,286   $  1,898   $   30,184
    Variable interest rates .........................                                            34,267      1,135       35,402
                                                                                               --------------------------------
    Total ...........................................                                          $ 62,553   $  3,033   $   65,586
                                                                                               ================================
</TABLE>

RESULTS OF OPERATIONS

2004 Financial Performance Overview

      At  $17,021,000,  Omega's  net  income  for 2004  represented  a return on
average assets (ROA) of 1.24%.  The decrease in ROA of 26 basis points from 2003
is due to  pre-merger  earnings of Omega,  which were  negatively  impacted by a
decline in net interest margin associated with the low rate environment in 2004,
coupled  with the  result of the merger  with Sun on  October  1, 2004.  The Sun
acquisition  increased  Omega's  assets by 82.7% as of December 31, 2004,  while
only adding approximately  $2,475,000 of net income for the balance of the year.
This translates to an estimated annualized ROA from the former Sun operations of
just 1.06%. The management of Omega strives to attain consistently high earnings
levels each year by protecting the core earnings base with  conservative  growth
strategies that minimize  shareholder risk, while serving a broad customer base.
This  approach has helped  achieve  solid  performances  year after year.  Omega
considers ROA to be a key  performance  ratio,  and constantly  scrutinizes  the
broad  categories  of  the  income  statement  that  impact  this  profitability
indicator.


                              Omega Financial Corporation 2004 Annual Report  15
<PAGE>

      Summarized  below  are the  components  of net  income  (in  thousands  of
dollars) and the contribution of each to ROA for 2004 and 2003.

<TABLE>
<CAPTION>
                                         2004                       2003
                                ----------------------------------------------------
                                                % of                        % of
                                              Average                      Average
                                               Assets                      Assets
                                ----------------------------------------------------
<S>                             <C>               <C>      <C>               <C>
Net interest income .........   $    45,705       3.33%    $   43,077         3.76%
Loan loss provision .........           300       0.02           (350)       (0.03)
Trust fees ..................         4,027       0.29          3,623         0.32
Deposit service fees ........         7,076       0.52          5,754         0.50
Other fees ..................         6,291       0.46          4,614         0.40
BOLI ........................         1,581       0.12          1,395         0.12
Security gains ..............           963       0.07          1,127         0.10
Gain on debt extinguishment .           570       0.04
Gains on sale of other assets          (102)     (0.01)           292         0.03
                                --------------------------------------------------
Total non-interest income ...        20,406       1.49         16,805         1.47
Employee expense ............       (22,888)     (1.67)       (20,091)       (1.75)
Occupancy and equipment .....        (6,036)     (0.44)        (5,149)       (0.45)
Other non-interest expense ..       (14,742)     (1.08)       (12,281)       (1.07)
Amortization of Intangibles .          (402)     (0.03)
                                --------------------------------------------------
Total non-interest expense ..       (44,068)     (3.21)       (37,521)       (3.28)
Income tax expense ..........        (5,322)     (0.39)        (4,826)       (0.42)
                                --------------------------------------------------
Net income ..................   $    17,021       1.24%    $   17,185         1.50%
                                ==================================================
Average assets ..............   $ 1,371,227                $1,145,407
</TABLE>

      The merger  with Sun has a material  impact on Omega's  2004  results.  In
order to  properly  analyze  2004,  management  has  identified  the  effects on
earnings  caused by the  addition of Sun on October 1, 2004.  Table 6 puts forth
the  approximate  effect of Sun's former  operations and the gains realized from
the  restructure of Sun's balance sheet.  Sun's  contribution  to net income for
2004 was estimated to be $2,475,000.

                                     Table 6
              Omega Financial Corporation Income Statement Analysis
                                 (In thousands)

<TABLE>
<CAPTION>
                                            Estimated          Estimated
                                         Contribution to    Contribution to   Omega 2004     Omega 2003
                                          2004 Results       2004 Results    Consolidated   Consolidated
                                         from Pre-Merger      from Former       Income         Income
                                        Omega Operations    Sun Operations     Statement     Statement       Variance
                                        -----------------------------------------------------------------------------
<S>                                         <C>                 <C>            <C>             <C>            <C>
Total interest income ................      $ 52,415           $ 9,956         $ 62,371       $ 56,783        $ 5,588
Total interest expense ...............        12,238             4,429           16,667         13,706          2,961
                                        -----------------------------------------------------------------------------
Net interest income ..................        40,177             5,527           45,704         43,077          2,627
Provision (credit) for loan losses ...          (300)               --             (300)           350           (650)
Service fee and other operating income        15,840             3,134           18,974         15,386          3,588
Net gains on sales of assets and
  early extinguishment of debt .......           331             1,100            1,431          1,419             12
                                        -----------------------------------------------------------------------------
Total non-interest income ............        16,171             4,234           20,405         16,805          3,600
Salaries and employee benefits .......        19,654             3,234           22,888         20,091          2,797
Other operating expense ..............        17,899             3,279           21,178         17,430          3,748
                                        -----------------------------------------------------------------------------
Total non-interest expense ...........        37,553             6,513           44,066         37,521          6,545
                                        -----------------------------------------------------------------------------
Income before tax ....................        19,095             3,248           22,343         22,011            332
Provision for federal income tax .....         4,549               773            5,322          4,826            496
                                        -----------------------------------------------------------------------------
Net income ...........................      $ 14,546           $ 2,475         $ 17,021       $ 17,185        $  (164)
                                        =============================================================================
</TABLE>


16
<PAGE>

                           Key Ratio Schedule (in %)

                           2004      2003       2002       2001       2000
                          -------------------------------------------------
Return on
  average assets .......   1.24%      1.50%      1.58%      1.56%      1.59%
Return on average
  stated equity ........   8.89%     10.32%     11.32%     11.50%     11.13%
Return on average
  tangible equity ......  11.84%     10.32%     11.32%     11.50%     11.13%
Yield on
  earning assets .......   5.06%      5.36%      6.10%      7.19%      7.64%
Cost of funds ..........   1.35%      1.29%      1.81%      2.92%      3.09%
Net interest
  margin ...............   3.71%      4.07%      4.28%      4.27%      4.55%
Net interest
  income to
  average assets .......   1.38%      1.34%      1.26%      1.14%      1.10%
Expenses to
  average assets .......   3.22%      3.28%      3.15%      3.11%      3.19%

      The  key  factors  that  defined  the  2004  results  are  as  follows:

o     Acquisition of Sun

o     Lower rate environment, reduced net interest margin

o     Higher service-based fee income

o     Reduced  gains on sale of  securities  and  loans,  offset by gain on debt
      restructuring

o     Other non-interest income growth

o     Ongoing expense control

Net Interest Income

      Net  interest  income is the  amount by which  interest  income on earning
assets exceeds interest expense on interest  bearing  liabilities.  Net interest
income is the most significant  component of revenue,  comprising  approximately
69% of total  revenues for 2004.  Net interest  margin is the  percentage of net
return on average  earning assets and provides a measure of  comparability  of a
financial  institution's  performance.  Because some interest earning assets are
tax-exempt, an adjustment is made for analytical purposes to place all assets on
a fully tax-equivalent basis.

      Both net interest  income and net interest margin are impacted by interest
rate changes,  changes in the relationships between various rates and changes in
the composition of the average  balance sheet.  Additionally,  product  pricing,
product mix and  customer  preferences  dictate the  composition  of the balance
sheet and the  resulting net interest  income.  Table 7 (located on pages 18-19)
shows average asset and liability balances,  average interest rates and interest
income  and  expense  for the period  2002 to 2004.  In  addition,  it shows the
changes attributable to the volume and rate components of net interest income.

      Total average loans were $926,102,000 in 2004 at an average weighted yield
of 5.77% that  produced  $53,396,000  in interest  income.  This  represented  a
$136,166,000,  or 17.2%,  increase in average loan volumes from 2003.  The yield
decreased 27 basis points to 5.77% from 6.04% in 2003 resulting in a decrease of
$2,247,000 in interest income,  while mix and volume changes increased  interest
income  $7,933,000 when compared to 2003. The combination of these rate,  volume
and mix effects  resulted in an increase of  $5,686,000,  or 11.9% in total loan
interest.  The 27  basis  point  decrease  in loan  yields  in  2004 is  largely
attributable to customers still refinancing from higher rate loans. However, the
decrease  in the loan  yields has slowed  considerably  from the  decrease of 78
basis  points  in 2003.  Rates  rose in 2004 and the  Federal  Reserve's  recent
signals indicate that further rate increases are likely.

      Investment securities averaged  $261,628,000,  an increase of $21,319,000,
or 8.9% from the average  investment  securities in 2003.  The average  weighted
yield  decreased  to 3.22% from 3.65% in 2003.  Interest  bearing  deposits  and
federal  funds sold, as a group on average,  increased  47.0%,  or  $13,798,000.
These  monies were  accumulated  during the fourth  quarter to support the early
extinguishment of Sun's long-term Federal Home Loan Bank debt.

      Total interest earning assets averaged  $1,230,913,000 at a yield of 5.07%
and produced total interest  income of $62,371,000 for 2004. The net increase in
average  earning  assets of  $171,283,000  in 2004 over 2003 was  primarily  the
result of the Sun  acquisition.  The yield decreased by 29 basis points to 5.07%
in 2004.  Lower yields caused a reduction of $3,362,000,  or 5.92%,  in interest
income while volume and mix changes increased it $8,950,000 or 15.78%.

      Total interest  bearing  liabilities  averaged  $997,509,000  at a cost of
$16,666,000  carrying a composite rate of 1.67%. This represented an increase in
interest bearing  liabilities of 21.5%, or $176,769,000 from 2003. The composite
rate was the same as 2003.  Interest  expense  decreased  $252,000  due to lower
rates and  increased  $3,212,000  due to volume and mix changes.  These  changes
resulted in a total increase of $2,960,000,  or 21.6%, in interest expense. Once
again the Sun  acquisition  was the key factor,  accounting for  $927,401,000 in
additional  interest  bearing  liabilities  when the merger was  consummated and
averaged approximately $183,000,000 for the year.

      Non-interest   bearing  funding  sources,   including   equity,   averaged
$373,718,000  in 2004,  compared  to  $324,667,000  in 2003,  for an increase of
$49,051,000,  or 15.1%. This increase was the result of demand deposits acquired
and the increased equity from the stock issued to consummate the Sun merger. The
rate to fund  interest  bearing  assets  increased by 6 basis points to 1.35% in
2004  from  1.29% in 2003.  This was the  result  of a lower  percentage  of the
earning assets being funded by non-interest bearing funding sources (computed by
dividing the total interest  expense by the total average earning  assets).  For
2004 this ratio was 30.4%; in 2003 it was 30.6%

      Net interest  income was  $45,705,000 for 2004, an increase of $2,628,000,
or 6.1%,  from 2003.  The  increase in net  interest  income was the result of a
decrease  of  $3,110,000  due  to  interest  rate  effects  and an  increase  of
$5,738,000 due to volume and mix changes.  Net yield was 3.71% in 2004 and 4.07%
in 2003. On a fully tax-equivalent  basis, the net yield decreased from 4.32% in
2003 to 3.92% in 2004.


                              Omega Financial Corporation 2004 Annual Report  17
<PAGE>

                                     Table 7
             Average Balance Sheets and Net Interest Income Analysis
                                 (In thousands)

<TABLE>
<CAPTION>
                                                               Years Ended December 31,
                                                           --------------------------------
                                                                        2004
                                                           --------------------------------
                                                            Average                  Yield/
                                                           Balance(1)     Interest    Rate
                                                           --------------------------------
<S>                                                        <C>             <C>         <C>
ASSETS
Interest earning assets:
 Taxable loans(5) ......................................   $   876,317     $51,077     5.83%
 Tax-exempt loans ......................................        49,785       2,319     4.66
                                                           --------------------------------
  Total loans ..........................................       926,102      53,396     5.77
 Taxable investment securities .........................       176,061       6,033     3.43
 Tax-exempt investment securities ......................        85,567       2,385     2.79
                                                           --------------------------------
  Total investment securities ..........................       261,628       8,418     3.22
 Interest bearing deposits .............................        22,680         311     1.37
 Federal funds sold ....................................        20,503         246     1.20
                                                           --------------------------------
Total interest earning assets ..........................     1,230,913      62,371     5.07
Non-interest earning assets:
 Cash and due from banks ...............................        37,607
 Allowance for loan losses .............................       (12,507)
 Premises and equipment ................................        20,446
 Other assets(7) .......................................        94,768
                                                           -----------
  Total assets .........................................   $ 1,371,227
                                                           ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest bearing liabilities:
 Interest bearing demand deposits(2) ...................   $   343,527       1,621     0.47
 Savings deposits ......................................       159,776         963     0.60
 Time deposits .........................................       389,206      10,380     2.67
 Other, including short-term borrowings, long-term debt,
  and other interest bearing liabilities ...............       105,000       3,702     3.53
                                                           --------------------------------
Total interest bearing liabilities .....................       997,509      16,666     1.67
Non-interest bearing liabilities:                                          -------
 Demand deposits .......................................       172,721
 Other .................................................         9,485
Shareholders' equity ...................................       191,512
                                                           -----------
  Total liabilities and shareholders' equity ...........   $ 1,371,227
                                                           ===========
Net interest income ....................................                   $45,705
                                                                           =======
Net yield on interest earning assets(3) ................                               3.71%
                                                                                     ======
Net interest income and yield--tax equivalent basis(4) .                   $48,238     3.92%
                                                                           =======   ======
</TABLE>

Notes:

1)    Average balances were calculated using a daily average.

2)    Includes NOW, money management and money market accounts.

3)    Net yield on interest  earning  assets is net interest  income  divided by
      average interest earning assets.

4)    Interest on  obligations  of states and  municipalities  is not subject to
      federal  income tax. In order to make the net yield  comparable on a fully
      taxable  basis,  a  tax  equivalent  adjustment  is  applied  against  the
      tax-exempt income utilizing a federal tax rate of 35%.

5)    Non-accruing  loans and  investments are included in the above table until
      they are charged off.

6)    The change in interest due to rate and volume has been allocated to volume
      and rate changes in proportion to the  relationship of the absolute dollar
      amounts of the change in each.

7)    Includes gross unrealized gains on securities  available for sale:  $6,194
      in 2004, $10,287 in 2003 and $8,614 in 2002.


18
<PAGE>

                                     Table 7
             Average Balance Sheets and Net Interest Income Analysis
                                 (In thousands)

<TABLE>
<CAPTION>
                                                                 Years Ended December 31,
                                           ------------------------------------------------------------------------
                                                            2003                                  2002
                                           --------------------------------------    ------------------------------
                                            Average                        Yield/     Average                Yield/
                                           Balance(1)        Interest       Rate     Balance(1)   Interest   Rate
                                           ------------------------------------------------------------------------
<S>                                        <C>             <C>               <C>     <C>           <C>         <C>
ASSETS
Interest earning assets:
 Taxable loans(5) ......................   $   745,132     $    45,852       6.15%   $  730,272    $50,948     6.98%
 Tax-exempt loans ......................        44,804           1,858       4.15        45,570      1,947     4.27
                                           ------------------------------------------------------------------------
  Total loans ..........................       789,936          47,710       6.04       775,842     52,895     6.82
 Taxable investment securities .........       142,567           5,650       3.96       168,671      7,816     4.63
 Tax-exempt investment securities ......        97,742           3,115       3.19        95,875      3,867     4.03
                                           ------------------------------------------------------------------------
  Total investment securities ..........       240,309           8,765       3.65       264,546     11,683     4.42
 Interest bearing deposits .............        10,252             103       1.00        11,976        177     1.48
 Federal funds sold ....................        19,133             205       1.07        13,057        205     1.57
                                           ------------------------------------------------------------------------
Total interest earning assets ..........     1,059,630          56,783       5.36     1,065,421     64,960     6.10
Non-interest earning assets:
 Cash and due from banks ...............        30,350                                   30,729
 Allowance for loan losses .............       (10,911)                                 (11,343)
 Premises and equipment ................        14,556                                   15,130
 Other assets(7) .......................        51,782                                   49,873
                                           -----------                               ----------
  Total assets .........................   $ 1,145,407                               $1,149,810
                                           ===========                               ==========

LIABILITIES AND SHAREHOLDERS' EQUITY
Interest bearing liabilities:
 Interest bearing demand deposits(2) ...   $   287,130           1,428       0.50    $  269,610      1,970     0.73
 Savings deposits ......................       130,125           1,127       0.87       118,329      1,441     1.22
 Time deposits .........................       348,638           9,784       2.81       394,710     14,366     3.64
 Other, including short-term
  borrowings, long-term debt,
  and other interest bearing liabilities        54,847           1,367       2.49        55,779      1,546     2.77
                                           ------------------------------------------------------------------------
Total interest bearing liabilities .....       820,740          13,706       1.67       838,428     19,323     2.30
                                                           -----------                             -------
Non-interest bearing liabilities:
 Demand deposits .......................       147,285                                  138,403
 Other .................................        10,913                                   12,428
Shareholders' equity ...................       166,469                                  160,551
                                           -----------                               ----------
  Total liabilities and
    shareholders' equity ...............   $ 1,145,407                               $1,149,810
                                           ===========                               ==========
Net interest income ....................                   $    43,077                             $45,637
                                                           ===========                             =======
Net yield on interest earning assets(3)                                      4.07%                             4.28%
                                                                           ======                            ======
Net interest income and yield--tax
  equivalent basis(4) ..................                   $    45,755       4.32%                 $48,768     4.58%
                                                           ===========     ======                  =======   ======

<CAPTION>
                                                               2004 Compared to 2003            2003 Compared to 2002
                                                           Increase (Decrease) Due To(6)    Increase (Decrease) Due To(6)
                                                           -----------------------------    -----------------------------
                                                            Volume      Rate      Total     Volume      Rate       Total
                                                           --------------------------------------------------------------
<S>                                                        <C>        <C>        <C>        <C>        <C>        <C>
ASSETS
Interest earning assets:
 Taxable loans(5) ......................................   $ 7,714    $(2,489)   $ 5,225    $ 1,026    $(6,122)   $(5,096)
 Tax-exempt loans ......................................       219        242        461        (33)       (56)       (89)
                                                           --------------------------------------------------------------
  Total loans ..........................................     7,933     (2,247)     5,686        993     (6,178)    (5,185)
 Taxable investment securities .........................     1,207       (824)       383     (1,120)    (1,046)    (2,166)
 Tax-exempt investment securities ......................      (364)      (366)      (730)        73       (825)      (752)
                                                           --------------------------------------------------------------
  Total investment securities ..........................       843     (1,190)      (347)    (1,047)    (1,871)    (2,918)
 Interest bearing deposits .............................       159         49        208        (23)       (51)       (74)
 Federal funds sold ....................................        15         26         41         77        (77)         0
                                                           --------------------------------------------------------------
Total interest earning assets ..........................     8,950     (3,362)     5,588          0     (8,177)    (8,177)
Non-interest earning assets:
 Cash and due from banks
 Allowance for loan losses
 Premises and equipment
 Other assets(7)
  Total assets
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest bearing liabilities:
 Interest bearing demand deposits(2) ...................       280        (87)       193        119       (661)      (542)
 Savings deposits ......................................       228       (392)      (164)       133       (447)      (314)
 Time deposits .........................................     1,101       (505)       596     (1,551)    (3,031)    (4,582)
 Other, including short-term borrowings, long-term debt,
  and other interest bearing liabilities ...............     1,603        732      2,335        (26)      (153)      (179)
                                                           --------------------------------------------------------------
Total interest bearing liabilities .....................     3,212       (252)     2,960     (1,325)    (4,292)    (5,617)
                                                           --------------------------------------------------------------
Non-interest bearing liabilities:
 Demand deposits
 Other
Shareholders' equity
  Total liabilities and shareholders' equity
Net interest income ....................................   $ 5,738    $(3,110)   $ 2,628    $ 1,325    $(3,885)   $(2,560)
                                                           ==============================================================
Net yield on interest earning assets(3)
Net interest income and yield--tax equivalent basis(4)
</TABLE>


                              Omega Financial Corporation 2004 Annual Report  19
<PAGE>

Provision for Loan Losses

      Omega's  provision for loan losses is determined as a result of changes in
the  adequacy  level of the  allowance  for loan loss  reserve.  In 2004,  Omega
credited its  provision  for $300,000 as compared to charging the  provision for
$350,000  in 2003,  a decrease  of  $650,000  or 185.7%.  The  reduction  in the
provision  reflects the  improvement in the Watch List loans and  non-performing
loans during the year, as the larger commercial credits were in the early stages
of their loss  migration  cycle and required  lower  allocations.  In 2004,  net
charge-offs exceeded the provision for loan losses by $3,839,000,  while in 2003
the net charge-offs exceeded the provision by $483,000. Credit quality is a high
priority for Omega as evidenced by its low ratios of net  charge-offs to average
loans  outstanding  and  non-performing  loans to the loan loss  allowance.  Net
charge-offs  in 2004 and 2003 were .38% and .11% of average  loans  outstanding,
respectively.  Non-performing  loans as a ratio to the allowance for loan losses
were 44.6% at year-end 2004 and 32.3% at the end of 2003. The allowance for loan
losses as a ratio to net loans was  1.18%  and 1.34% at  December  31,  2004 and
2003, respectively.

Non-Interest Income

      Omega remains committed to continually  increasing  customer  satisfaction
and expanding  existing  customer  relationships by delivering  popular services
conveniently.  This  commitment is affirmed by the continued  increase in income
from traditional bank services.  In 2002, 2003 and 2004, 16.3%,  19.0% and 21.0%
of total revenues,  respectively,  was derived from service-based fee income. We
believe that our advanced front line delivery systems,  our interactive web site
with  on-line  banking,  our  customer  information  center,  our broad  menu of
investment  products  and our  extensive  employee  training  programs  have all
contributed to the satisfaction of our customer base.  Technology  advances that
allow us to be better and more  quickly  informed  about our clients  help us be
responsive to their financial needs with personalized  service and well-designed
products.  Service-based  fee income (fees on deposits,  loans,  trust services,
investment and insurance products and other services) grew to $17,394,000 during
2004, for a 24.3% or $3,403,000  increase when compared to $13,991,000 for 2003.
The majority of this increase was the result of the Sun acquisition.

      Bank-owned life insurance (BOLI) continues to generate non-interest income
each year as the cash surrender value  increases.  BOLI earnings were $1,581,000
in 2004, as compared to $1,395,000 in 2003.

      As  a  percentage  of  average  assets,   non-interest  income  (excluding
securities gains, gain on debt  extinguishment  and other gains from the sale of
assets) was 1.38% for 2004, as compared to 1.34% in 2003.

      In 2004, net gains from investment  securities  decreased by $164,000,  or
14.6% to $963,000, which includes a gain of $652,000 related to the sale of $116
million of investments acquired from Sun, the proceeds of which were utilized to
repay a portion of the Sun debt discussed below.  Management  considers multiple
factors when selling investment securities; therefore, income from this activity
can fluctuate  dramatically from year to year. Omega generally sells only equity
securities  that have  appreciated  in value  since their  purchase.  Primarily,
equity  securities  are  considered  for sale when there is market  appreciation
available,  when  there is no longer a  business  reason to hold the stock or if
securities gains are desired to supplement earnings. Occasionally, a loss may be
recognized on debt and equity  securities  if permanent  impairment is deemed to
have occurred.

      Likewise, other gains or losses can be realized in a given year based upon
unique  circumstances.  Management  is  committed to  controlling  rate risk and
occasionally  will sell longer term fixed-rate  assets to reposition the balance
when the rate risk analysis  warrants it. During the fourth quarter,  Omega paid
down  $171,000,000  of Federal  Home Loan Bank Debt that was acquired in the Sun
merger.  This  resulted in a gain of $570,000  due to favorable  rate  movements
after the merger was closed.  Net losses of  $102,000 on other  assets sold were
realized in 2004 as compared to a gain of $292,000 in 2003.

Non-Interest Expense

      In order to  optimize  earnings,  Omega's  management  strives to minimize
operating  expense.  Total  non-interest  expenses were  $44,068,000 for 2004 as
compared to $37,521,000  for 2003,  representing  an increase of $6,547,000,  or
17.4%.    Management    estimates   that   Sun   contributed    most   of   this
increase--$6,123,000  or 93.5%. As a percentage of average assets,  non-interest
expense was 3.22% for 2004 as compared to 3.28% in 2003.

      Salaries and employee  benefits  increased by 13.9%, or $2,797,000 in 2004
as  compared  to 2003.  Salary  and  related  employee  benefits  related to Sun
employees that were retained  accounted for  $3,234,000 of this increase,  which
was offset by a $437,000 reduction in salaries and benefits prior to the merger.

      Occupancy and equipment increased by $887,000,  or 17.2%, driven primarily
by the  addition  of Sun's  23  branches  and its  administration  center.  Data
processing  costs were $1,839,000 for the year  representing a $166,000 or 9.92%
increase.  Shares tax also increased $166,000 to $1,705,000 representing a 10.8%
increase.  These  increases  can  primarily  be  attributed  to the former Sun's
operations  during the fourth  quarter.  Other expenses were  $11,198,000 for an
increase of $2,139,000  or 23.6%,  primarily  due to the  additional  operations
acquired.

      Amortization  of  intangible  assets was  $402,000  in 2004 as compared to
$10,000  in 2003.  Omega  booked a core  deposit  intangible  in the  amount  of
$14,210,000 (preliminary estimate at December 31, 2004) and other intangibles of
$2,866,000 as a result of acquiring Sun. These are being  amortized over various
periods. The amortized cost for the year on these intangibles was $390,000.

Income Taxes

      Income tax expense for 2004 amounted to $5,322,000  compared to $4,826,000
in 2003.  The effective tax rate was 23.8% in 2004 versus 21.9% in 2003,  due to
Omega's tax favored income being lower in 2004 as compared to 2003. This was the
result of the  $19,346,000  in penalties  paid to the Federal Home Loan Bank for
the early  extinguishment  of debt being  treated as  interest  expense  for tax
purposes when determining the TEFRA  disallowance that is used to reduce the tax
free income. Additionally, in 2003, an adjustment to tax expense was recorded to
reverse a  deferred  tax  liability  no  longer  necessary.  Average  tax-exempt
investments  and loans as a percentage  of average  assets were 9.9%,  12.4% and
12.3% in 2004, 2003 and 2002, respectively. Tax-exempt income as a percentage of
income  before  tax  was  21.1%,  22.6%  and  24.4%  in  2004,  2003  and  2002,
respectively.  See Note 15 of Notes to  Consolidated  Financial  Statements  for
further information on income taxes.


20
<PAGE>

Net Income

      For  comparative  purposes,  the following  table sets forth  earnings (in
thousands of dollars) and selected earnings ratios for the past three years.


                                           2004         2003         2002
                                        -----------------------------------
Net income .........................    $  17,021    $  17,185    $  18,179
Return on average assets ...........         1.24%        1.50%        1.58%
Return on average equity ...........         8.89%       10.32%       11.32%
Return on average tangible equity ..        11.84%       10.32%       11.32%

2003 Financial Performance Overview

      At  $17,185,000,  Omega's  net  income  for 2003  represented  a return on
average assets (ROA) of 1.50%. Although ROA decreased 5.0% from 2002, it was the
Corporation's  eighth  consecutive  year of  achieving  ROA  levels  of 1.50% or
greater.

      Summarized  below  are the  components  of net  income  (in  thousands  of
dollars) and the contribution of each to return on assets for 2003 and 2002.

<TABLE>
<CAPTION>
                                          2003                             2002
                                ---------------------------------------------------------
                                                   % of                            % of
                                                  Average                         Average
                                                  Assets                          Assets
                                ---------------------------------------------------------
<S>                             <C>                <C>           <C>               <C>
Net interest income .........   $    43,077         3.76%        $   45,637          3.97%
Loan loss provision .........          (350)       (0.03)              (630)        (0.05)
Trust fees ..................         3,623         0.32              3,585          0.31
Deposit service fees ........         5,754         0.50              5,099          0.44
Other fees ..................         4,614         0.40              4,342          0.38
BOLI ........................         1,395         0.12              1,523          0.13
Security gains ..............         1,127         0.10                412          0.04
Gains on sale of other assets           292         0.03                 73          0.01
                                ---------------------------------------------------------
Total non-interest income ...        16,805         1.47             15,034          1.31
Employee expense ............       (20,091)       (1.75)           (19,753)        (1.72)
Occupancy and equipment .....        (5,149)       (0.45)            (4,864)        (0.42)
Other non-interest expense ..       (12,281)       (1.07)           (11,595)        (1.01)
                                ---------------------------------------------------------
Total non-interest expense ..       (37,521)       (3.28)           (36,212)        (3.15)
Income tax expense ..........        (4,826)       (0.42)            (5,650)        (0.49)
                                ---------------------------------------------------------
Net income ..................   $    17,185         1.50%        $   18,179          1.58%
                                =========================================================
Average assets ..............   $ 1,145,407                      $1,149,810
</TABLE>

      The key factors that defined the 2003 results are as follows:

o     Lower rate environment, reduced net interest margin

o     Increasing service-based fee income

o     Increased gains on sale of securities and loans

o     Other non-interest income growth

o     Ongoing expense control

      Assets  were   $1,140,166,000   at  December  31,  2003,   representing  a
$14,391,000,  or 1.2%,  decrease  from  year-end  2002.  Loans (net of  unearned
interest) were  $788,144,000  at December 31, 2003 compared to  $779,819,000  at
December 31, 2002, an increase of 1.1%,  or  $8,325,000.  Deposits  decreased by
$11,675,000, or 1.3%, at December 31, 2003 when compared to December 31, 2002.

      Return on average equity (ROE)  decreased from 11.32% in 2002 to 10.32% in
2003,  while  return on average  assets  decreased  to 1.50% from 1.58% in 2002.
Omega's peer group,  consisting of all banks  headquartered in Pennsylvania with
consolidated  assets of $1 billion  to $5  billion,  reported  return on average
equity of 14.66% and return on average assets of 1.34%.

Net Interest Income

      Net  interest  income,  the  greatest  component  of  revenue,   comprised
approximately 59% of total revenues for 2003. As with the discussion  section on
2004 Net Interest Income, all assets are stated on a fully tax-equivalent basis.
Table 7 (located on pages 18-19) shows  average  asset and  liability  balances,
average  interest  rates and interest  income and expense for the period 2002 to
2004.  In  addition,  it shows the changes  attributable  to the volume and rate
components of net interest income.

      Total average loans were $789,936,000 in 2003 at an average weighted yield
of 6.04% that  produced  $47,710,000  in interest  income.  This  represented  a
$14,094,000,  or 1.8%,  increase in average loan  volumes  from 2002.  The yield
decreased 78 basis points to 6.04% from 6.82% in 2002 resulting in a decrease of
$6,178,000 in interest income,  while mix and volume changes increased  interest
income $993,000 when compared to 2002. The combination of these rate, volume and
mix  effects  resulted  in a  decrease  of  $5,185,000,  or 9.8% in  total  loan
interest.  One of the principal  reasons for the 78 basis point decrease in loan
yields in 2003 is that in the lower rate environment during 2003,  variable rate
commercial loans increased  $50,285,000 on average,  while fixed rate commercial
loans decreased on average by $28,142,000, when compared to 2002.


                              Omega Financial Corporation 2004 Annual Report  21
<PAGE>

      Investment securities averaged $240,309,000, a decrease of $24,237,000, or
9.2% from the average investment  securities in 2002. The average weighted yield
decreased  to 3.65% from 4.42% in 2002.  Interest  bearing  deposits and federal
funds sold, as a group on average,  increased a total of 17.4%,  or  $4,352,000.
These monies were used to support the loan demand.

      Total interest earning assets averaged  $1,059,630,000 at a yield of 5.36%
and produced total interest  income of $56,783,000 for 2003. The net decrease in
average  earning  assets of  $5,791,000  in 2003 over 2002 was a result of lower
deposits.  The yield  decreased by 74 basis points to 5.36% in 2003.  On a fully
tax-equivalent  basis,  yield on earning assets  decreased by 79 basis points to
5.61%.  Lower yields  caused the full  reduction  of  $8,177,000,  or 12.6%,  in
interest income. On a fully tax-equivalent  basis,  interest income decreased by
$8,630,000, or 12.7%.

      Total interest  bearing  liabilities  averaged  $820,740,000  at a cost of
$13,706,000  carrying a composite rate of 1.67%.  This represented a decrease in
interest  bearing  liabilities of 2.1%, or $17,688,000  from 2002. The composite
rate decreased by 63 basis points in 2003, from 2.30% in 2002.  Interest expense
decreased  $4,292,000 due to lower rates and decreased  $1,325,000 due to volume
and mix changes.  These changes  resulted in a total decrease of $5,617,000,  or
29.1%, in interest expense.  The most significant  change in liabilities was the
decrease in time  deposits  of  $46,072,000,  or 11.7% and the  increase in core
deposits of $38,198,000.  Management believes that many consumers had once again
decided to move their deposits to more liquid vehicles, as was the case in 2001.

      Non-interest   bearing  funding  sources,   including   equity,   averaged
$324,667,000  in 2003,  compared  to  $311,382,000  in 2002,  for an increase of
$13,285,000,  or 4.3%.  Most of the  increase  was  attributed  to  non-interest
bearing demand deposit  balances.  The increase in non-interest  bearing funding
sources  resulted  in a  decrease  of 53  basis  points  in  the  rate  to  fund
interest-earning  assets (computed by dividing the total interest expense by the
total average earning assets) to 1.29% in 2003 from 2.82% in 2002.

      Net interest income was $43,077,000 for 2003, a decrease of $2,560,000, or
5.6%,  from  2002.  The  decrease  in net  interest  income  was the result of a
decrease of $3,885,000  due to interest rate effects and an increase of $325,000
due to volume and mix changes. Net yield was 4.07% in 2003 and 4.28% in 2002. On
a fully  tax-equivalent  basis,  the net yield  decreased from 4.58% to 4.32% in
2003.

Provision for Loan Losses

      The charge to earnings for the  provision  for loan losses was $350,000 in
2003 and  $630,000 in 2002,  a decrease of  $280,000  or 44.4%.  This  reduction
reflects the improvement in the Watch List loans and non-performing loans during
the year.  In 2003,  net  charge-offs  exceeded the provision for loan losses by
$483,000,  while in 2002 the net charge-offs exceeded the provision by $172,000.
The  low  ratios  of  net   charge-offs   to  average  loans   outstanding   and
non-performing  loans to the loan loss  allowance  testify to the  importance of
credit quality to Omega's  profitability.  Net charge-offs in 2003 and 2002 were
..11% and .10%, respectively, of average loans outstanding.  Non-performing loans
as a ratio to the  allowance  for loan losses  were 32.3% at  year-end  2003 and
33.9% at the end of 2002.  The allowance for loan losses as a ratio to net loans
was 1.34% and 1.42% at December 31, 2003 and 2002, respectively.

Non-Interest Income

      Service-based  fee  income  (fees  on  deposits,  loans,  trust  services,
investment and insurance products and other services) grew to $13,991,000 during
2003 for a 7.4% or $965,000  increase when compared to $13,026,000 for 2002. New
products  should be well  received  and  further  increase  fee income in future
years.

      Bank-owned life insurance (BOLI) continues to generate non-interest income
each year as the cash surrender value  increases.  BOLI earnings were $1,395,000
in 2003, as compared to $1,523,000 in 2002.

      As  a  percentage  of  average  assets,   non-interest  income  (excluding
securities gains and other gains from the sale of assets) was 1.34% for 2003, as
compared to 1.26% in 2002.

      In 2003, net gains from investment  securities  increased by $715,000,  or
173.5% to $1,127,000. Gains or losses can be realized in a given year based upon
unique circumstances.  For example, in 2003 management made a decision to sell a
block of mortgage loans in order to reduce interest rate risk within the balance
sheet.  Book  value of the  loans  on the  dates of the sale in June of 2003 was
$10,148,000,  producing a gain of $268,000.  Small sales of other assets  during
2003  brought the total gain on the sale of loans and other  assets to $292,000.
In 2002, gains on the sale of loans and other assets were only $73,000.

      In total, net gains realized on the sale of investment  securities,  loans
and other assets were $1,419,000 in 2003 versus  $485,000 in 2002,  resulting in
an increase  in  non-interest  income of  $934,000,  or 193.0%.  These net gains
represented .13% of average assets in 2003, as compared to .05% in 2002.


22
<PAGE>

Non-Interest Expense

      Total  non-interest  expenses  were  $37,521,000  for 2003 as  compared to
$36,212,000 for 2002, representing an increase of $1,309,000, or 3.6%.

      Salaries and employee  benefits  increased by 1.7%, or $338,000 in 2003 as
compared  to 2002.  Omega was able to reduce  the  number of  average  full time
equivalent  employees  during the year by 0.6%.  Omega employed one employee for
every $2,314,000 in average assets in 2003,  versus $2,311,000 of average assets
in 2002.

      Occupancy and equipment  increased by $285,000,  or 5.9%, driven primarily
by  depreciation  for technology  improvements,  as well as increased  costs for
utilities,  real estate taxes, building maintenance and equipment  depreciation.
All other non-interest  expenses of $12,281,000  increased in total by $686,000,
or 5.9% in 2003 as compared to 2002.  The  increase  was related to  accelerated
amortization  of  $802,000  recorded  on  investments  in  limited   partnership
low-income  housing projects,  due to declines in estimated residual values. The
remainder  of  the  increase  in  other  non-interest  expense  reflected  costs
associated  with  supporting  new  revenue-generating  services.  Excluding  the
accelerated  amortization,  other non-interest expense decreased by $116,000, or
1.0%.

      As a percentage of average assets, non-interest expense was 3.28% for 2003
as compared to 3.15% in 2002.

Income Taxes

      Income tax expense for 2003 amounted to $4,826,000  compared to $5,650,000
in 2002.  The  effective  tax rate was 21.9% in 2003 versus  23.7% in 2002.  The
improvement  in 2003  was  primarily  due to the  tax  benefit  received  by the
Corporation  pursuant  to IRS Code  Section  404(k) as amended  by the  Economic
Growth and Tax Relief  Reconciliation  Act of 2001.  This allows Omega to deduct
cash dividends paid on employer stock held by the Employee Stock  Ownership Plan
(ESOP).  Additionally,  in 2003,  an  adjustment  to tax expense was recorded to
reverse a deferred tax liability no longer necessary.

      Omega's level of average  tax-exempt  investments  and average  tax-exempt
loans  increased in 2003 by 0.8% or $1,101,000,  decreasing the federal tax rate
by 7.2%,  as  compared  to 2002,  when the tax rate was  decreased  by 7.4% as a
result of  tax-exempt  assets.  Average  tax-exempt  investments  and loans as a
percentage of average assets were 12.4%, 12.3% and 11.5% in 2003, 2002 and 2001,
respectively.  Tax-exempt income as a percentage of income before tax was 22.6%,
24.4% and 24.7% in 2003,  2002 and 2001,  respectively.  See Note 15 of Notes to
Consolidated Financial Statements for further information on income taxes.

Net Income

      For  comparative  purposes,  the following  table sets forth  earnings (in
thousands  of dollars)  and certain  earnings  ratios for the past three years.

                                 2003           2002            2001
                                -------------------------------------
Net income ..................   $17,185        $18,179        $17,655
Return on average assets ....      1.50%          1.58%          1.56%
Return on average equity ....     10.32%         11.32%         11.50%


                              Omega Financial Corporation 2004 Annual Report  23
<PAGE>

             REPORT ON MANAGEMENT'S ASSESSMENT OF INTERNAL CONTROL
                            OVER FINANCIAL REPORTING

      Omega  Financial  Corporation's  (Omega)  management  is  responsible  for
establishing and maintaining effective internal control over financial reporting
that is designed to produce  reliable  financial  statements in conformity  with
United States generally accepted accounting  principles.  The system of internal
control over  financial  reporting as it relates to the financial  statements is
evaluated for  effectiveness by management and tested for  reliability.  Actions
are taken to correct potential  deficiencies as they are identified.  Any system
of internal  control,  no matter how well  designed,  has inherent  limitations,
including the  possibility  that a control can be circumvented or overridden and
misstatements due to error or fraud may occur and not be detected. Also, because
of changes in conditions,  internal  control  effectiveness  may vary over time.
Accordingly,  even an  effective  system of internal  control  will provide only
reasonable assurance with respect to financial statement preparation.

      Management  assessed the  effectiveness  of Omega's  internal control over
financial  reporting  as of December  31,  2004,  in  relation  to criteria  for
effective  internal  control over financial  reporting as described in "Internal
Control--Integrated   Framework,"   issued  by  the   Committee  of   Sponsoring
Organizations  of the  Treadway  Commission.  This  assessment  did not  include
internal control over financial  reporting  related to Sun Bancorp,  Inc., which
Omega  acquired on October 1, 2004.  Total assets and net assets from the former
Sun Bancorp, Inc. approximated $959,000,000 and $146,000,000,  respectively,  at
December  31,  2004.  Additionally,  net  interest  income and net income of the
acquired  operations of Sun Bancorp,  Inc.  were  approximately  $5,527,000  and
$2,475,000,  respectively, from October 1, 2004 through December 31, 2004. Based
on this  assessment,  management  concluded  that, as of December 31, 2004,  its
system of internal  control over  financial  reporting  was effective to provide
reasonable  assurance  regarding the reliability of financial  reporting and the
preparation  of  financial   statements  for  external   reporting  purposes  in
accordance with generally accepted accounting principles.

      Ernst & Young LLP,  independent  registered  public  accounting  firm, has
audited the consolidated financial statements included in this annual report and
has  issued an audit  report on  management's  assessment  of  Omega's  internal
control over financial reporting.


/s/ David B. Lee                           /s/ Daniel L. Warfel

David B. Lee                               Daniel L. Warfel
Chairman and                               Executive Vice President
  Chief Executive Officer                    and Chief Financial Officer


State College, PA
March 11, 2005


24
<PAGE>

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
         ON EFFECTIVENESS OF INTERNAL CONTROL OVER FINANCIAL REPORTING

The Board of Directors and Shareholders
of Omega Financial Corporation

      We have  audited  management's  assessment,  included in the  accompanying
Report of Management's  Assessment of Internal Control Over Financial  Reporting
that Omega Financial  Corporation  maintained  effective  internal  control over
financial  reporting as of December 31, 2004,  based on criteria  established in
Internal  Control--Integrated  Framework  issued by the  Committee of Sponsoring
Organizations  of the Treadway  Commission (the COSO criteria).  Omega Financial
Corporation's  management is  responsible  for  maintaining  effective  internal
control over financial  reporting and for its assessment of the effectiveness of
internal control over financial  reporting.  Our responsibility is to express an
opinion on management's  assessment and an opinion on the  effectiveness  of the
company's internal control over financial reporting based on our audit.

      We  conducted  our audit in  accordance  with the  standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and  perform  the audit to obtain  reasonable  assurance  about  whether
effective  internal  control over  financial  reporting  was  maintained  in all
material  respects.  Our audit included  obtaining an  understanding of internal
control over financial reporting,  evaluating management's  assessment,  testing
and evaluating the design and operating  effectiveness of internal control,  and
performing   such  other   procedures   as  we   considered   necessary  in  the
circumstances.  We believe that our audit  provides a  reasonable  basis for our
opinion.

      A  company's  internal  control  over  financial  reporting  is a  process
designed to provide reasonable  assurance regarding the reliability of financial
reporting and the preparation of financial  statements for external  purposes in
accordance with generally accepted accounting  principles.  A company's internal
control over financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail, accurately and
fairly reflect the  transactions  and dispositions of the assets of the company;
(2) provide reasonable  assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting  principles,  and that receipts and  expenditures  of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of  unauthorized  acquisition,  use, or  disposition  of the company's
assets that could have a material effect on the financial statements.

      Because of its  inherent  limitations,  internal  control  over  financial
reporting  may not prevent or detect  misstatements.  Also,  projections  of any
evaluation  of  effectiveness  to future  periods  are  subject to the risk that
controls may become  inadequate  because of changes in  conditions,  or that the
degree of compliance with the policies or procedures may deteriorate.

      In our opinion,  management's  assessment that Omega Financial Corporation
maintained  effective  internal control over financial  reporting as of December
31, 2004 is fairly stated, in all material respects, based on the COSO criteria.
Also, in our opinion,  Omega Financial Corporation  maintained,  in all material
respects, effective internal control over financial reporting as of December 31,
2004 based on the COSO criteria.

      We also have  audited,  in  accordance  with the  standards  of the Public
Company  Accounting  Oversight Board (United States),  the consolidated  balance
sheets of Omega Financial  Corporation as of December 31, 2004 and 2003, and the
related consolidated statements of income,  shareholders' equity, and cash flows
for each of the three  years in the  period  ended  December  31,  2004 of Omega
Financial  Corporation  and  our  report  dated  March  15,  2005  expressed  an
unqualified opinion thereon.

                                                        /s/ Ernest & Young LLP

Pittsburgh, Pennsylvania
March 15, 2005


                              Omega Financial Corporation 2004 Annual Report  25
<PAGE>

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
                      ON CONSOLIDATED FINANCIAL STATEMENTS

The Shareholders and Board of Directors
Omega Financial Corporation

      We have  audited the  accompanying  consolidated  balance  sheets of Omega
Financial  Corporation (Omega) as of December 31, 2004 and 2003, and the related
consolidated  statements of income,  changes in shareholders'  equity,  and cash
flows for each of the three years in the period ended  December 31, 2004.  These
financial   statements  are  the  responsibility  of  Omega's  management.   Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

      We conducted  our audits in  accordance  with the  standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain  reasonable  assurance about whether the
financial  statements  are free of  material  misstatement.  An  audit  includes
examining,  on a test basis,  evidence supporting the amounts and disclosures in
the  financial  statements.  An audit also  includes  assessing  the  accounting
principles  used  and  significant  estimates  made  by  management,  as well as
evaluating the overall  financial  statement  presentation.  We believe that our
audits provide a reasonable basis for our opinion.

      In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Omega Financial
Corporation and subsidiaries at December 31, 2004 and 2003, and the consolidated
results of their  operations and their cash flows for each of the three years in
the period ended December 31, 2004, in conformity with U.S.  generally  accepted
accounting principles.

      We also have  audited,  in  accordance  with the  standards  of the Public
Company Accounting  Oversight Board (United States),  the effectiveness of Omega
Financial Corporation's internal control over financial reporting as of December
31,  2004,  based  on  criteria  established  in  Internal   Control--Integrated
Framework  issued by the Committee of Sponsoring  Organizations  of the Treadway
Commission and our report dated March 15, 2005, expressed an unqualified opinion
thereon.

                                                        /s/ Ernest & Young LLP

Pittsburgh, Pennsylvania
March 15, 2005


26
<PAGE>

                  Omega Financial Corporation and Subsidiaries
                           CONSOLIDATED BALANCE SHEETS
                        (In thousands, except share data)

                                                     December 31,
                                              --------------------------
                                                  2004           2003
                                              --------------------------
ASSETS
Cash and due from banks ...................   $    47,877    $    32,420
Interest bearing deposits with other banks         31,122         10,682
Federal funds sold ........................        36,350         17,850
Investment securities available for sale ..       327,979        240,539
Investment in unconsolidated subsidiary ...         1,625             --
Loans available for sale ..................        22,515             --
Total portfolio loans .....................     1,305,735        788,144
Less: Allowance for loan losses ...........       (15,644)       (10,569)
                                              --------------------------
Net portfolio loans .......................     1,290,091        777,575
Premises and equipment, net ...............        35,509         14,348
Other real estate owned ...................         3,082            741
Bank-owned life insurance .................        72,845         37,134
Investment in limited partnerships ........         8,605             --
Core deposit intangibles ..................        13,927             50
Other intangibles .........................         2,799             --
Goodwill ..................................       156,959             --
Other assets ..............................        31,286          8,827
                                              --------------------------
TOTAL ASSETS ..............................   $ 2,082,571    $ 1,140,166
                                              ==========================
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
  Non-interest bearing ....................   $   228,408    $   155,702
  Interest bearing ........................     1,273,674        751,878
                                              --------------------------
Total deposits ............................     1,502,082        907,580
Short-term borrowings .....................        90,259         33,263
ESOP debt .................................         2,192          2,521
Junior subordinated debentures ............        57,190             --
Long-term debt ............................        99,579         21,600
Other interest bearing liabilities ........           854            813
Other liabilities .........................        14,676          6,950
                                              --------------------------
TOTAL LIABILITIES .........................     1,766,832        972,727
Shareholders' Equity
Preferred stock, par value $5.00 per share:
Authorized--5,000,000 shares, none issued
Common stock, par value $5.00 per share:
  Authorized--25,000,000 shares;
  Issued--
    12,593,524 shares at December 31, 2004;
    10,048,368 shares at December 31, 2003
  Outstanding--
    12,593,524 shares at December 31, 2004;
    8,458,823 shares at December 31, 2003 .        62,968         50,242
Capital surplus ...........................        98,370         15,711
Retained earnings .........................       152,249        146,430
Accumulated other comprehensive income ....         3,526          5,209
Unearned compensation related to ESOP debt         (1,374)        (1,624)
Cost of common stock in treasury:
  1,589,545 shares at December 31, 2003 ...            --        (48,529)
                                              --------------------------
TOTAL SHAREHOLDERS' EQUITY ................       315,739        167,439
                                              --------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY    $ 2,082,571    $ 1,140,166
                                              ==========================

The accompanying notes are an integral part of these statements.


                              Omega Financial Corporation 2004 Annual Report  27
<PAGE>

                  Omega Financial Corporation and Subsidiaries
                        CONSOLIDATED STATEMENTS OF INCOME
                        (In thousands, except share data)

<TABLE>
<CAPTION>
                                                        Years Ended December 31,
                                                      -----------------------------
                                                        2004       2003      2002
                                                      -----------------------------
<S>                                                   <C>         <C>       <C>
INTEREST INCOME:
Interest and fees on loans ........................   $ 53,396    $47,710   $52,895
Interest and dividends on investment securities:
  Taxable interest income .........................      5,403      5,195     7,131
  Tax-exempt interest income ......................      2,385      3,115     3,867
  Dividend income .................................        630        455       685
Other interest income .............................        557        308       382
                                                      -----------------------------
TOTAL INTEREST INCOME .............................     62,371     56,783    64,960
INTEREST EXPENSE:
Interest on deposits ..............................     12,964     12,339    17,777
Interest on short-term borrowings .................      1,302        329       754
Interest on long-term debt and
  other interest bearing liabilities ..............      2,400      1,038       792
                                                      -----------------------------
TOTAL INTEREST EXPENSE ............................     16,666     13,706    19,323
                                                      -----------------------------
NET INTEREST INCOME ...............................     45,705     43,077    45,637
Provision for loan losses .........................       (300)       350       630
                                                      -----------------------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES     46,005     42,727    45,007
NON-INTEREST INCOME:
Trust fees ........................................      4,027      3,623     3,585
Service fees on deposit accounts ..................      7,076      5,754     5,099
Service fees on loans .............................      1,547      1,351     1,227
Earnings on bank-owned life insurance .............      1,581      1,395     1,523
Net gains on investment securities
  available for sale ..............................        963      1,127       412
Gain on the early extinguishment of debt ..........        570         --        --
(Loss) gain on sale of loans and other assets .....       (102)       292        73
Other .............................................      4,744      3,263     3,115
                                                      -----------------------------
TOTAL NON-INTEREST INCOME .........................     20,406     16,805    15,034
NON-INTEREST EXPENSE:
Salaries and employee benefits ....................     22,888     20,091    19,753
Net occupancy expense .............................      2,790      2,372     2,287
Equipment expense .................................      3,246      2,777     2,577
Data processing service ...........................      1,839      1,673     1,740
Pennsylvania shares tax ...........................      1,705      1,539     1,499
Amortization of intangible assets .................        402         10        10
Other .............................................     11,198      9,059     8,346
                                                      -----------------------------
TOTAL NON-INTEREST EXPENSE ........................     44,068     37,521    36,212
                                                      -----------------------------
INCOME BEFORE INCOME TAXES ........................     22,343     22,011    23,829
Income tax expense ................................      5,322      4,826     5,650
                                                      -----------------------------
NET INCOME ........................................   $ 17,021    $17,185   $18,179
                                                      =============================
EARNINGS PER SHARE
Basic .............................................   $   1.79    $  2.07   $  2.17
Diluted ...........................................       1.78       2.01      2.10
Weighted average shares and equivalents:
Basic .............................................      9,484      8,169     8,189
Diluted ...........................................      9,570      8,524     8,621
</TABLE>

The accompanying notes are an integral part of these statements.


28
<PAGE>

                  Omega Financial Corporation and Subsidiaries
                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                        (In thousands, except share data)

<TABLE>
<CAPTION>
                                                                   Years Ended December 31, 2002, 2003 and 2004
                                               ------------------------------------------------------------------------------------
                                                                                                                Cost of
                                                                                                   Accumulated   Common
                                                          Unearned                                 Other Com-    Stock
                                               Preferred  Compen-    Common   Capital   Retained   prehensive      In
                                                 Stock     sation    Stock    Surplus   Earnings     Income     Treasury    Total
                                               ------------------------------------------------------------------------------------
<S>                                            <C>        <C>        <C>      <C>       <C>        <C>          <C>       <C>
Balance at December 31, 2001 ................  $   5,000  $ (2,125)  $47,238  $ 7,856   $ 129,774  $     4,943  $(36,436) $ 156,250
Comprehensive income:
  Net income ................................                                              18,179
  Change in unrealized securities gains, net                                                             2,300
Total comprehensive income ..................                                                                                20,479
Common dividends declared--$1.13 per share ..                                              (9,227)                           (9,227)
Cash dividends, preferred--$1.80 per share ..                                                (396)                             (396)
Amortization of unearned compensation .......                  250                                                              250
Tax benefit from employee stock options .....                                                 432                               432
Tax benefit from preferred stock
  dividends paid to ESOP ....................                                                  59                                59
Purchase of treasury stock--281,685 shares                                                                        (9,207)    (9,207)
Exercised employee stock options--
  159,453 shares ............................                            797    2,673                                         3,470
                                               ------------------------------------------------------------------------------------
Balance at December 31, 2002 ................      5,000    (1,875)   48,035   10,529     138,821        7,243   (45,643)   162,110
Conversion of preferred to common stock .....     (5,000)              1,731    3,269                                            --
Comprehensive income:
  Net income ................................                                              17,185
  Change in unrealized securities gains, net                                                            (2,034)
Total comprehensive income ..................                                                                                15,151
Common dividends declared--$1.17 per share ..                                              (9,582)                           (9,582)
Cash dividends, preferred--$1.35 per share ..                                                (297)                             (297)
Amortization of unearned compensation .......                  251                                                              251
Tax benefit from employee stock options .....                                                 251                               251
Tax benefit from preferred stock
  dividends paid to ESOP ....................                                                  52                                52
Purchase of treasury stock--82,247 shares                                                                         (2,886)    (2,886)
Exercised employee stock options--
  95,137 shares .............................                            476    1,913                                         2,389
                                               ------------------------------------------------------------------------------------
Balance at December 31, 2003 ................         --    (1,624)   50,242   15,711     146,430        5,209   (48,529)   167,439
Comprehensive income:
  Net income ................................                                              17,021
  Change in unrealized securities gains, net                                                            (1,683)
Total comprehensive income ..................                                                                                15,338
Common dividends declared--
  $1.20 per share ...........................                                             (11,388)                          (11,388)
Amortization of unearned compensation .......                  250                                                              250
Tax benefit from employee stock options .....                                                 139                               139
Tax benefit from dividends paid to
  ESOP on unallocated common stock ..........                                                  47                                47
Issuance of 2,457,571 shares for
  acquisition of Sun Bancorp, Inc. ..........                         12,288   78,817                             51,017    142,122
Value of options assumed in Sun Acquisition .                                   1,853                                         1,853
Purchase of treasury stock--
  73,212 shares .............................                                                                     (2,488)    (2,488)
Exercised employee stock options--
  87,585 shares .............................                            438    1,989                                         2,427
                                               ------------------------------------------------------------------------------------
Balance at December 31, 2004 ................  $      --  $ (1,374)  $62,968  $98,370   $ 152,249  $     3,526  $     --  $ 315,739
                                               ====================================================================================
</TABLE>

The accompanying notes are an integral part of these statements.


                              Omega Financial Corporation 2004 Annual Report  29
<PAGE>

                  Omega Financial Corporation and Subsidiaries
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In thousands)

<TABLE>
<CAPTION>
                                                                                           Years Ended December 31,
                                                                                      ----------------------------------
                                                                                        2004         2003         2002
                                                                                      ----------------------------------
<S>                                                                                   <C>          <C>          <C>
Cash flows from operating activities:
  Net income ......................................................................   $  17,021    $  17,185    $ 18,179
  Adjustments to reconcile net income to net cash provided by operating activities:
    Depreciation and amortization .................................................       4,463        4,891       3,523
    Provision for loan losses .....................................................        (300)         350         630
    Gain on sale of investment securities .........................................        (963)      (1,127)       (412)
    Gain on early extinguishment of debt ..........................................        (570)          --          --
    Non-monetary gift .............................................................          43           48          --
    Gain on sale of fixed assets and other assets .................................         120          (18)        (11)
    Gain on sale of loans .........................................................         (18)        (274)        (62)
    Provision for deferred income tax .............................................       2,315         (397)        (88)
    Increase in cash surrender value of bank owned life insurance .................      (1,582)      (1,395)     (1,523)
    (Increase) decrease in interest receivable and other assets ...................        (217)         146       1,165
    Increase (decrease) in interest payable .......................................       2,050         (192)       (547)
    Increase (decrease) in taxes payable ..........................................       1,250         (513)        979
    Amortization of deferred net loan (fees) costs ................................        (380)        (682)       (311)
    Deferral of net loan fees .....................................................         652          665         538
    Decrease in accounts payable and accrued expenses .............................      (6,429)      (1,610)       (257)
                                                                                      ----------------------------------
      Total adjustments ...........................................................         434         (108)      3,624
                                                                                      ----------------------------------
Net cash provided by operating activities .........................................      17,455       17,077      21,803
Cash flows from investing activities:
Investment securities available for sale:
  Proceeds from sales .............................................................     129,742        3,404       3,323
  Proceeds from maturities ........................................................     105,326      104,106      96,378
  Cash used for purchases .........................................................    (112,733)    (100,432)    (82,072)
Investment in unconsolidated subsidiary ...........................................      (1,114)          --          --
Net cash paid for acquisition of Sun Bancorp, Inc. ................................     (23,244)          --          --
  Net change in interest bearing deposits with other banks ........................     (18,118)      (1,925)     23,055
  Decrease (Increase) in loans and leases .........................................      51,982      (21,790)    (25,571)
  Gross proceeds from sale of loans and leases ....................................      67,700       12,923       5,139
  Investment in limited partnerships ..............................................        (205)          --          --
  Capital expenditures ............................................................      (3,213)      (1,907)     (1,271)
  Sale of fixed assets and other property owned ...................................       8,945           42         341
  Net change in federal funds sold ................................................     (18,500)      16,050     (19,450)
  Purchase of bank-owned life insurance ...........................................          --       (4,000)         --
                                                                                      ----------------------------------
Net cash provided by (used in) investing activities ...............................     186,568        6,471        (128)
</TABLE>

The accompanying notes are an integral part of these statements.

                                                        (continued on next page)


30
<PAGE>

                  Omega Financial Corporation and Subsidiaries
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In thousands)

<TABLE>
<CAPTION>
                                                                              Years Ended December 31,
                                                                       --------------------------------------
                                                                          2004          2003          2002
                                                                       --------------------------------------
<S>                                                                    <C>           <C>           <C>
Cash flows from financing activities:
  Net change in deposits ...........................................      (41,943)      (11,675)      (12,412)
  Increase (decrease) in short-term borrowings, net ................       14,452       (13,189         3,880
  Issuance of junior subordinated debt .............................       37,114            --            --
  Issuance of long-term debt .......................................       17,000        11,500            54
  Principal payment on long-term debt ..............................     (198,728)       (1,137)       (1,051)
  Net change in other interest bearing liabilities .................           41            51            59
  Payment of fee to terminate swap arrangement .....................       (5,053)           --            --
  Dividends paid ...................................................      (11,388)      (12,230)       (9,491)
  Issuance of common stock .........................................        2,427         2,389         3,470
  Acquisition of treasury stock ....................................       (2,488)       (2,886)       (9,207)
                                                                       --------------------------------------
Net cash used in financing activities ..............................     (188,566)      (27,177)      (24,698)
                                                                       --------------------------------------
Net increase (decrease) in cash and cash equivalents ...............   $   15,457    $   (3,629)   $   (3,023)
                                                                       ======================================
Cash and cash equivalents at beginning of period ...................   $   32,420    $   36,049    $   39,072
Cash and cash equivalents at end of period .........................       47,877        32,420        36,049
                                                                       --------------------------------------
Net increase (decrease) in cash and cash equivalents ...............   $   15,457    $   (3,629)   $   (3,023)
                                                                       ======================================
Interest paid ......................................................   $   16,505    $   13,898    $   19,918
Income taxes paid ..................................................        3,662         5,735         4,790
Supplemental schedule of noncash investing and financing activities:
Business acquisition:
Fair value of tangible assets acquired (noncash) ...................      960,381            --            --
Goodwill and identifiable intangible assets acquired ...............      174,036            --            --
Liabilities assumed ................................................     (967,198)           --            --
Stock options ......................................................       (1,853)           --            --
Common stock issued ................................................     (142,122)           --            --
Other noncash activity:
Transfers of loans to other real estate owned ......................          411           885           130
Transfers of bank property to other real estate owned ..............        2,277            --            --
</TABLE>


                              Omega Financial Corporation 2004 Annual Report  31
<PAGE>

                  Omega Financial Corporation and Subsidiaries
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 (Years Ended December 31, 2004, 2003 and 2002)

NATURE OF OPERATIONS

      Omega  Financial  Corporation  is a financial  holding  company  operating
primarily  in  central  and  northeastern  Pennsylvania,   for  the  purpose  of
delivering financial services within its local market. Consisting of banking and
non-bank   subsidiaries,   Omega  Financial   Corporation  provides  retail  and
commercial  banking and other financial  services through 68 offices in Bedford,
Blair, Centre,  Clinton,  Cumberland,  Dauphin,  Huntingdon,  Juniata,  Luzerne,
Lycoming, Mifflin,  Northumberland,  Snyder, and Union counties. Each of Omega's
entities are part of the same reporting  segment,  whose  operating  results are
regularly reviewed and managed by a centralized  executive management group. The
bank provides a full range of banking services  including  on-line  banking,  an
automatic  teller machine  network,  checking  accounts,  NOW accounts,  savings
accounts,   money  market   accounts,   investment   certificates,   fixed  rate
certificates  of deposit,  club accounts,  secured and unsecured  commercial and
consumer loans, construction and mortgage loans, safe deposit facilities, credit
loans with overdraft checking  protection and student loans. The bank subsidiary
also  provides  a  variety  of trust  services  and lease  servicing.  Omega has
contracted  with a  broker-dealer  to allow the  offering of  annuities,  mutual
funds,  stock  and  bond  brokerage  services,   long-term  care  insurance  and
sophisticated  life products to its local market.  Additionally,  a full service
insurance  agency has been added to the financial group owned by Omega.  Most of
Omega  Financial  Corporation's  commercial  customers  are small and  mid-sized
businesses in central and northeastern Pennsylvania.

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

      The  accounting  policies of Omega  Financial  Corporation  and its wholly
owned subsidiaries  conform to accounting  principles  generally accepted in the
United States and to general financial services industry practices. A summary of
the more  significant  accounting  policies  applied in the  preparation  of the
accompanying consolidated financial statements follows.

Principles of Consolidation

      Accounting  Research  Bulletin  51  (ARB  51),   "Consolidated   Financial
Statements,"  requires a company's  consolidated  financial  statements  include
subsidiaries  in which the company has a controlling  financial  interest.  This
requirement  usually has been applied to  subsidiaries  in which a company has a
majority voting interest.

      Investments in companies in which the Corporation  controls  operating and
financing decisions (principally defined as owning a voting or economic interest
greater  than  50%) are  consolidated.  Investments  in  companies  in which the
Corporation  has  significant  influence over operating and financing  decisions
(principally  defined as owning a voting or economic interest of 20% to 50%) and
limited partnership investments are generally accounted for by the equity method
of accounting.  Entities whose equity holders do not have voting rights or whose
equity is  insufficient  to  support  its  activities  are  consolidated  if the
Corporation is deemed to absorb a majority of the risk of loss or returns.

      The  voting  interest  approach  defined  in ARB 51 is not  applicable  in
identifying   controlling   financial   interests  in  entities   that  are  not
controllable  through voting  interests or in which the equity  investors do not
bear the  residual  economic  risks.  In such  instances,  Financial  Accounting
Standards Board Interpretation 46 (FIN 46),  "Consolidation of Variable Interest
Entities  (VIE),"  provides  guidance  on when a company  should  include in its
financial  statements the assets,  liabilities and activities of another entity.
In  general,  a VIE is a  corporation,  partnership  trust,  or any other  legal
structure used for business  purposes that either does not have equity investors
with  voting  rights or has  equity  investors  that do not  provide  sufficient
financial resources for the entity to support its activities.  FIN 46 requires a
VIE to be  consolidated by a company if that company is subject to a majority of
the risk of loss from the VIE's  activities or entitles it to receive a majority
of the entity's  residual returns or both. A company that  consolidated a VIE is
called the primary  beneficiary  of that  entity.  Omega is not deemed to be the
primary beneficiary of any VIEs as of December 31, 2004 or December 31, 2003.

      The  consolidated  financial  statements  include  the  accounts  of Omega
Financial Corporation and its wholly owned subsidiaries  (hereafter collectively
referred to as "Omega" or the  "Corporation"):  Omega Bank, N.A. ("Omega Bank"),
Central  Pennsylvania  Investment Co., Central  Pennsylvania Life Insurance Co.,
Central Pennsylvania Leasing,  Inc., Mid Penn Insurance Associates ("Mid Penn"),
Beacon Life  Insurance  Co. and Central  Pennsylvania  Real Estate,  Inc.  Omega
Bank's wholly owned  subsidiaries  include  Sentry Trust  Company,  Bank Capital
Services  Corporation,  SUBI Services,  Inc., Sun Investment Services,  Inc. and
Omega  Financial  Company LLC. All  significant  intercompany  transactions  and
balances have been eliminated.

Use of Estimates

      The accounting and reporting policies of the Corporation conform with U.S.
generally  accepted   accounting   principles.   The  preparation  of  financial
statements in conformity  with U.S.  generally  accepted  accounting  principles
requires management to make estimates, assumptions and judgments that affect the
amounts  reported in the  consolidated  financial  statements  and  accompanying
notes. Actual results could differ materially from those estimates.

Business Combinations

      Business  combinations  are  accounted  for under the  purchase  method of
accounting.  Under the purchase  method,  assets and liabilities of the business
acquired  are  recorded  at their  estimated  fair  values as of the date of the
acquisition  with any excess of the cost of the acquisition  over the fair value
of the net tangible and intangible assets acquired recorded as goodwill. Results
of operations of the acquired business are included in the income statement from
the date of acquisition. Refer to Note 3 for further discussion.

Cash and Cash Equivalents

      Cash  equivalents  consist of  non-interest  bearing  deposits  with other
banks.

Investment Securities

      Securities  classified  as available for sale,  which  include  marketable
investment securities, are stated at market value, with the unrealized gains and
losses,  net of tax,  reported as a component  of  comprehensive  income,  until
realized. Investment securities for


32
<PAGE>

which  management  has the  positive  intent and ability to hold the security to
maturity are classified as held to maturity and are stated at cost, adjusted for
amortization  of premium  and  accretion  of discount  on a  level-yield  basis.
Interest and dividends on investment  securities  available for sale and held to
maturity  are  recognized  as  income  when  earned.  Gains  or  losses  on  the
disposition  of  securities  are  based  on the net  proceeds  and the  adjusted
carrying amount of the securities sold, determined on a specific  identification
basis. (See Note 5).

      Omega's policy requires  quarterly  reviews of impaired  securities.  This
review includes  analyzing the length of time and the extent to which the market
value has been less than cost; the financial  condition and near-term  prospects
of the issuer,  including any specific events which may influence the operations
of the  issuer  and the  intent  and  ability  of the  Corporation  to hold  its
investment for a period of time sufficient to allow for any anticipated recovery
in market value.

Loans

      Loans are stated at the  principal  amounts  outstanding,  net of unearned
income.  Interest income on all loans,  other than non-accrual loans, is accrued
over the term of the loans based on the amount of principal outstanding.

      Loans  on  which  the  accrual  of  interest  has  been  discontinued  are
designated as non-accrual  loans.  Accrual of interest on loans is  discontinued
when reasonable doubt exists as to the full,  timely  collection of principal or
interest.  When a loan is placed on non-accrual  status, all interest previously
accrued but not collected is reversed  against current period income.  Income on
such loans is then recognized only to the extent that cash is received and where
the future  collection  of principal is probable.  Accruals are resumed on loans
only when they are brought fully current with respect to interest and principal,
and when,  in the  judgment  of  management,  the loan is  estimated  to be well
secured and fully  collectible as to both principal and interest.  It is Omega's
policy to continue to accrue  interest on loans over 90 days past due as long as
they are (1) well secured and (2) there is an effective means of collection.

      Loans are considered for charge-off when

(1)   principal  or  interest  has been in default  for 120 days or more and for
      which no payment has been received  during the previous  four months,

(2)   all  collateral  securing  the loan has been  liquidated  and a deficiency
      balance remains,

(3)   a bankruptcy  notice is received for an unsecured loan, or

(4)   the loan is deemed to be uncollectible for any other reason.

      Loans charged off are recorded against the allowance for loan losses.

      Management routinely evaluates all commercial loan accounts for impairment
status.  An impaired  loan is defined as a  commercial  loan over  $100,000  and
classified as doubtful or substandard and in non-accrual status or troubled debt
restructure.  Impairment is recognized  to the extent that the  collateral  fair
value of the impaired loan is less than the loan balance. The difference between
collateral  fair  value  and the loan  balance  is  factored  into the loan loss
reserve specific  allocations when determining the adequacy of the allowance for
loan losses.

      Loans,  other than commercial  loans, are placed in homogenous  groups and
historical  loss factors are applied to determine the amount of impairment.  The
homogenous groups are consumer installment loans and residential mortgages.

      The Corporation's intent is to hold loans in the portfolio until maturity.
At the time the  Corporation's  intent is no longer  to hold  loans to  maturity
based on asset/liability  management practices,  the Corporation transfers loans
from  portfolio to held for sale at the lower of cost or market.  Any write-down
recorded  upon transfer is charged  against the  allowance for loan losses.  Any
write-downs  recorded  after the initial  transfer  are  recorded as a charge to
Other Non-Interest Expense. Gains or losses recognized upon sale are recorded as
Other Non-Interest Income/Expense.

Loan Origination Fees and Costs

      Loan  origination  fees and related direct  origination  costs for a given
loan are offset and the net amount is deferred  and  amortized  over the life of
the loan on a level-yield basis as an adjustment to interest income.

Allowance for Loan Losses

      For financial reporting purposes, the provision for loan losses charged to
current operating income is based on management's  estimates,  and actual losses
may vary from  estimates.  These  estimates  are  reviewed and adjusted at least
quarterly  and are  reported  in  earnings  in the  periods in which they become
known. In determining the adequacy of the allowance for loan losses,  management
makes specific allocations to watch list loans and pools of non-watch list loans
for various  credit risk factors,  including the  composition  and growth of the
loan portfolio,  overall portfolio quality, levels of delinquent loans, specific
problem loans,  prior loan loss experience and current economic  conditions that
may affect a  borrower's  ability to pay.  The loan loss  provision  for federal
income tax purposes is based on current income tax regulations,  which allow for
deductions equal to net charge-offs.

Other Real Estate Owned

      Assets acquired in settlement of mortgage loan  indebtedness  are recorded
as other real estate  owned (OREO) and are included in other assets at the lower
of fair value minus  estimated costs to sell or the carrying amount of the loan.
Costs to maintain the assets and  subsequent  gains and losses  attributable  to
their disposal are included in other income and other  expenses as realized.  No
depreciation  or  amortization  expense is  recognized.  OREO also includes bank
premises held for sale,  which are transferred at the lower of carrying value or
estimated fair value less anticipated selling costs. Subsequent changes in value
are reported as non-interest income on the income statement. Gains or losses not
previously  recognized  resulting  from  the  sale of  OREO  are  recognized  in
non-interest  expense on the date of sale.  At December  31, 2004 and 2003,  the
carrying value of other real estate owned and held for investment was $3,082,000
and $741,000, respectively.


                              Omega Financial Corporation 2004 Annual Report  33
<PAGE>

Investments in Limited Partnerships

      Omega is a limited partner in nine  partnerships at December 31, 2004 that
provide  low income  elderly  housing in Omega's  geographic  market  area.  The
carrying value of Omega's investments in limited  partnerships was $6,282,000 at
December  31,  2004 and zero at  December  31,  2003.  It is  Omega's  policy to
amortize the  investment in each  partnership  over the life of the ten-year tax
credits  generated  by the  investment  using a  method  that  approximates  the
effective yield method.  Amortization of limited partnership investments totaled
$166,000 in 2004, $807,000 in 2003 and $11,000 in 2002.

      Omega is also a partner in two  partnerships  at  December  31,  2004 that
provide  office  space  in  areas   designated  as  empowerment   zones  by  the
Commonwealth of Pennsylvania. These partnerships provide Pennsylvania Shares Tax
credits  to  the  investor.  Carrying  value  of  Omega's  investment  in  these
partnerships  was $2,323,000 at December 31, 2004 and zero at December 31, 2003.
It is Omega's policy to amortize the  investment in these types of  partnerships
to 50% of the initial investment over a ten-year period, based upon the expected
residual value of the investment.  Amortization of these partnership investments
totaled $16,000 in 2004 and none in prior years.

Goodwill and Other Intangible Assets

      Goodwill represents the excess of the cost of an acquisition over the fair
value of the net assets acquired.  Other intangible  assets represent  purchased
assets that also lack physical  substance  but can be  separately  distinguished
from goodwill  because of contractual or other legal rights or because the asset
is capable of being sold or exchanged either on its own or in combination with a
related  contract,  asset or  liability.  It is Omega's  policy that Goodwill be
tested at least annually for impairment.

      Intangible  assets with  finite  lives  include  core  deposits,  customer
relationships  and trade  names.  Intangible  assets are  subject to  impairment
testing whenever events or changes in  circumstances  indicate that the carrying
amount may not be recoverable.  Core deposit,  customer relationship and certain
trade name intangibles are amortized over a period of time that represents their
expected  life  using a method of  amortization  that  reflects  the  pattern of
economic benefit.

Premises and Equipment and Depreciation

      Premises and equipment are stated at cost less  accumulated  depreciation.
Depreciation  is computed  using both the  straight-line  and  declining-balance
methods, over the estimated useful lives of the assets (See Note 9).

Trust Revenues

      Trust revenues are recorded on the accrual basis.

Revenues from the Sales of Investment Products

      Revenues  from sales of  investment  products  are recorded on the accrual
basis.  Although  customers  have the right to cancel and  receive a full refund
during a time period after the investment is made,  reversals of revenue related
to these cancellations are recorded in the period when they occur. The amount of
revenues related to cancellations is deemed to be immaterial.

Bank-Owned Life Insurance

      The cash  surrender  value of bank-owned  life  insurance is carried as an
asset and changes in cash surrender value are recorded as  non-interest  income.
(See Note 8).

Income Taxes

      Omega and its subsidiaries, except for Central Pennsylvania Life Insurance
Company and Beacon Life Insurance  Company,  file a consolidated  federal income
tax  return.  The  provision  for  income  taxes is based  upon the  results  of
operations,  adjusted principally for tax-exempt income. Certain items of income
or expense are reported in different  periods for  financial  reporting  and tax
return purposes.  The tax effects of these temporary  differences are recognized
currently in the deferred income tax provision or benefit.

      Deferred tax assets or  liabilities  are computed  based on the difference
between the financial  statement and income tax bases of assets and  liabilities
using the applicable enacted marginal tax rate.  Deferred income tax expenses or
benefits are based on the changes in the  deferred  tax asset or liability  from
period to period.

Stock-Based Compensation

      In  December  2002,  the FASB issued  Statement  of  Financial  Accounting
Standards No. 148,  "Accounting  for  Stock-Based  Compensation--Transition  and
Disclosure."  This statement  provides  alternative  methods of transition for a
voluntary  change to the fair value based method of accounting  for  stock-based
employee  compensation  and amends the  disclosure  requirements  of SFAS 123 to
require  prominent  annual and  interim  disclosures  about the  method  used to
account for stock-based compensation.

      Omega  accounts for  stock-based  compensation  using the intrinsic  value
method  in  accordance  with  Accounting  Principles  Board  (APB)  Opinion  25,
"Accounting  for Stock  Issued to  Employees,"  and has adopted  the  disclosure
provisions  of FASB No. 148,  "Accounting  for  Stock-Based  Compensation."  The
following  pro forma  information  regarding  net income and  earnings per share
assumes the adoption of Statement No. 123 for stock options  granted  subsequent
to December 31, 1994.  The  estimated  fair value of the options is amortized to
expense over the vesting period.

      The fair value was  estimated  at the date of grant using a  Black-Scholes
option-pricing  model  utilizing  various  assumptions  as disclosed in Note 19.
Compensation  expense,  net of related tax,  amounted to $897,000,  $746,000 and
$653,000 in 2004, 2003 and 2002,  respectively  and is included in the pro forma
net income reported below (in thousands, except per share data):

                                  2004          2003          2002
                                -------------------------------------
Net income
  As reported ...............   $  17,021     $  17,185     $  18,179
  Pro forma .................      16,124        16,439        17,526
Basic earnings per share
  As reported ...............   $    1.79     $    2.07     $    2.17
  Pro forma .................        1.70          1.98          2.09
Diluted earnings per share
  As reported ...............   $    1.78     $    2.01     $    2.10
  Pro forma .................        1.68          1.92          2.02


34
<PAGE>

      The  Black-Scholes   option-valuation  model  was  developed  for  use  in
estimating the fair value of traded options,  which have no vesting restrictions
and are fully  transferable.  In addition,  option  valuation models require the
input of highly  subjective  assumptions  including  the  expected  stock  price
volatility.   Because  Omega's  employee  stock  options  have   characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially  affect the fair value estimate,  in
management's  opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.

2. RECENT ACCOUNTING PRONOUNCEMENTS

      In December 2004, the FASB revised SFAS 123,  "Accounting  for Stock-Based
Compensation."  SFAS 123R  establishes  accounting  requirements for share-based
compensation  to employees and carries  forward prior guidance on accounting for
awards to non-employees.  The provisions of this statement will become effective
July 1, 2005 for all equity awards granted after the effective  date.  SFAS 123R
requires an entity to recognize compensation expense based on an estimate of the
number of awards expected to vest, exclusive of awards expected to be forfeited.
The  Corporation  will adopt SFAS 123R on July 1, 2005.  Management  has not yet
determined the method of adoption it will use or possible changes in the type of
stock-based  compensation  it will use in the future and thus cannot project the
impact on  financial  condition  or the  results  of  operations  as a result of
adoption. (See Note 19).

      In January 2003, the FASB issued  Interpretation No. 46, "Consolidation of
Variable  Interest  Entities,"  (FIN 46). The  objective of FIN 46 is to provide
guidance on how to identify a variable  interest entity (VIE) and determine when
the assets, liabilities, non-controlling interests, and results of operations of
a VIE need to be included in a company's  consolidated  financial statements.  A
VIE exists when either the total equity  investment at risk is not sufficient to
permit the entity to finance its activities by itself,  or the entity  investors
lack one of three characteristics associated with owning a controlling financial
interest.  Those characteristics  include the direct or indirect ability to make
decisions about an entity's  activities through voting rights or similar rights,
the obligation to absorb the expected  losses of an entity if they occur, or the
right to receive the expected residual returns of the entity if they occur.

      In December 2003, the FASB reissued FIN 46 with certain  modifications and
clarifications.  Application  of this  guidance  was  effective  for interest in
certain VIEs commonly referred to as special-purpose entities as of December 31,
2003.  Application  for all other types of  entities is required  for the period
ending after March 25, 2004, unless previously applied. Management has evaluated
the  applicability  of the revised FIN 46 to various  instruments and interests,
including low-income housing partnership  interests,  to determine whether these
entities are VIEs and whether the Corporation is either a primary beneficiary or
a significant  interest holder in the VIE. Omega Financial invests in low-income
housing and historic tax credit projects primarily through its subsidiary, Omega
Bank,  for the purpose of  providing a source of private  sector  financing  for
projects to promote economic  development,  create employment  opportunities and
contribute to the enhancement of the community.  Investments principally consist
of real estate projects and venture/working capital. The size of the VIEs in the
aggregate was $13,752,000. The Corporation has a carrying value of $8,605,000 of
these  investments at December 31, 2004. As a limited partner in these projects,
Omega is allocated tax credits and  deductions  associated  with the  underlying
projects.  The  adoption of FIN 46 as of March 31,  2004,  did not result in the
consolidation of any of the partnership investments currently held.

      In March 2004, the Financial  Accounting  Standards  Board (FASB) Emerging
Issues Task Force (EITF) released Issue 03-01,  "Meaning of Other Than Temporary
Impairment,"  which addressed  other-than-temporary  impairment for certain debt
and equity  investments.  The recognition and measurement  requirements of Issue
03-01, and other disclosure requirements not already implemented, were effective
for periods  beginning  after June 15, 2004. In September  2004,  the FASB staff
issued FASB Staff Position  (FSP) EITF 03-1-1,  which delayed the effective date
for certain  measurements and recognition guidance contained in Issue 03-01. The
FSP requires  the  application  of  pre-existing  other-than-temporary  guidance
during the period of delay until a final  consensus is reached.  Management does
not anticipate the issuance of the final  consensus will have a material  impact
on financial condition, the results of operations, or liquidity.

      In December 2003, the American  Institute of Certified Public  Accountants
issued  Statement of Position (SOP) 03-3,  "Accounting for Certain Loans or Debt
Securities Acquired In a Transfer." SOP 03-3 requires acquired loans,  including
debt  securities,  to be  recorded  at the  amount  of the  purchaser's  initial
investment and prohibits carrying over valuation  allowances from the seller for
those individually-evaluated loans that have evidence of deterioration in credit
quality since origination,  and it is probable all contractual cash flows on the
loan will be unable to be  collected.  SOP 03-3 also  requires the excess of all
undiscounted  cash  flows  expected  to be  collected  at  acquisition  over the
purchaser's  initial  investment  to  be  recognized  as  interest  income  on a
level-yield basis over the life of the loan.  Subsequent increases in cash flows
expected to be collected are recognized  prospectively  through an adjustment of
the  loan's  yield over its  remaining  life,  while  subsequent  decreases  are
recognized as impairment.  Loans carried at fair value,  mortgage loans held for
sale, and loans to borrowers in good standing under revolving credit  agreements
are excluded  from the scope of SOP 03-3.  The  guidance is effective  for loans
acquired in fiscal years  beginning  after December 15, 2004 and is not expected
to have a material  impact on financial  condition,  results of  operations,  or
liquidity.

3. ACQUISITION

      On October 1, 2004,  Omega completed its acquisition of Sun Bancorp,  Inc.
("Sun"),  a bank holding company  operating 23 retail bank branch offices in the
central Pennsylvania area. The acquisition allowed the Corporation to expand its
product offerings over a larger geographic area. In the merger, Sun shareholders
received  either 0.664 shares of Omega common stock for each share of Sun common
stock or $23.25 in cash for each share held, depending on shareholder  elections
and subject to the  allocation  provisions  of the merger  agreement.  Under the
terms of the merger agreement,


                              Omega Financial Corporation 2004 Annual Report  35
<PAGE>

20% of the  outstanding  Sun common stock was  exchanged for cash and 80% of the
outstanding Sun common stock was exchanged for Omega common stock. In connection
with the merger, Omega paid to the former shareholders of Sun, in the aggregate,
approximately  $35,921,000  in cash and to issue to the former  shareholders  of
Sun, in the aggregate,  approximately  4,117,000  shares of Omega's common stock
(excluding  approximately 258,000 shares of Omega common stock to be issued upon
exercise of options that, pursuant to the merger agreement, were substituted for
options  that were  exercisable  for shares of Sun's  common  stock prior to the
merger).  The total cost of the transaction was $187,729,000.  The common shares
issued  were  valued at $34.52  per  share,  representing  an average of closing
market prices of Omega common stock for the period  commencing  two trading days
before,  and ending two trading  days  after,  April 20,  2004,  the date of the
merger agreement.

      The assets and  liabilities  of the acquired  entity were  recorded on the
balance sheet at their  estimated  fair values as of October 1, 2004,  and their
results of operations have been included in the consolidated statement of income
since then.

      The following table shows the  calculation  and preliminary  allocation of
the purchase price:

Cash ...................................................   $  35,921,000
Omega common stock exchanged for
  Sun common stock .....................................     142,122,000
Fair value of outstanding Sun employees'
  and directors' stock options assumed .................       1,853,000
                                                           -------------
Total equity issued to Sun shareholders,
  employees and directors ..............................     143,975,000
Incremental direct costs associated with transaction ...       7,833,000
                                                           -------------
Total purchase price ...................................   $ 187,729,000
                                                           =============
Net assets acquired:
Sun stockholders' equity ...............................      78,045,000
Elimination of Sun's goodwill and other intangibles ....     (41,542,000)
                                                           -------------
  Sun's tangible book value ............................      36,503,000
Estimated adjustments to reflect assets acquired
  and liabilities assumed at fair value:
    Loans and leases ...................................      (7,942,000)
    Operating leases ...................................        (888,000)
    Other real estate owned ............................        (272,000)
    Identified intangibles
      Core deposit intangible ..........................      14,211,000
      Other identifiable intangibles ...................       2,866,000
    Deferred and current income taxes ..................      19,586,000
    Time deposits ......................................      (2,625,000)
    Long-term debt .....................................     (22,346,000)
    Subordinated debentures ............................      (3,269,000)
    Rate swaps .........................................      (5,054,000)
    Goodwill ...........................................     156,959,000
                                                           -------------
Net assets acquired ....................................   $ 187,729,000
                                                           =============

      The following table  summarizes the estimated fair value (in thousands) of
the net assets acquired from Sun:

Assets:
Cash and due from banks ................................   $      20,510
Interest-bearing deposits ..............................           2,322
Investment securities, available for sale ..............         213,391
Investment in unconsolidated subsidiaries ..............             511
Loans and leases, net of unearned
  income and allowance for loan losses .................         654,352
Operating leases .......................................           8,730
Premises and equipment .................................          22,769
Goodwill and other intangibles .........................         174,036
Other assets ...........................................          63,288
                                                           -------------
Total assets ...........................................       1,159,909

Liabilities:
Deposits ...............................................         636,690
Borrowings .............................................         323,170
Other liabilities ......................................          12,320
                                                           -------------
Total liabilities ......................................         972,180
                                                           -------------
Net assets acquired ....................................   $     187,729
                                                           =============
Acquisition funded by:
  Common stock issued and stock options assumed ........   $     143,975
  Cash paid ............................................          43,754
                                                           -------------
                                                           $     187,729
                                                           =============

      The  estimated  fair  values  of  the  acquired  assets  and  liabilities,
including  identifiable  intangible  assets,  are  preliminary  and  subject  to
refinement.  Any  subsequent  adjustments  to the  fair  values  of  assets  and
liabilities   acquired,   identifiable   intangible  assets  or  other  purchase
accounting  adjustments  will result in adjustments to goodwill within the first
12 months following the date of acquisition.

      The  following  unaudited  pro forma  consolidated  financial  information
presents  the  combined  results  of  operations  of  Omega  and  Sun  as if the
acquisition had occurred as of January 1, 2004 and 2003, respectively.

                                                  For the Years Ended
                                                      December 31,
                                                ------------------------
                                                  2004           2003
                                                ------------------------
                                                 (In thousands, except
                                                    per share data)
Net interest income ........................    $  69,138     $   73,636
Provision (credit) for loan losses .........        2,299          1,970
                                                ------------------------
Net interest income after
  provision for loan losses ................       66,839         71,666
Non-interest income ........................       31,042         31,035
Non-interest expense .......................       67,852         63,236
                                                ------------------------
Income before income taxes .................       30,029         39,465
Income tax expense .........................        6,341          9,757
                                                ------------------------
Net income .................................    $  23,688     $   29,708
                                                ========================
Net income per common share:
  Basic ....................................    $    1.89     $     2.36
  Diluted ..................................         1.88           2.35
Weighted average shares and equivalents:
  Basic ....................................       12,576         12,576
  Diluted ..................................       12,662         12,645


36
<PAGE>

      The pro forma results include  amortization  of fair value  adjustments on
loans,  deposits and debt, and  amortization  of newly created  intangibles  but
exclude post-merger acquisition related charges and the effects of restructuring
the balance  sheet.  The pro forma  number of  weighted  average  common  shares
outstanding  includes  adjustments for shares issued for the acquisition and the
impact of additional  dilutive  securities does not assume any incremental share
repurchases.  The pro forma results presented do not reflect all cost savings or
revenue  enhancements  anticipated  from the acquisition and are not necessarily
indicative of what actually  would have  occurred if the  acquisitions  had been
completed as of the beginning of each period presented, nor are they necessarily
indicative of future results.

4. RESTRICTIONS ON CASH AND DUE FROM BANKS

      Omega's banking  subsidiary is required to maintain cash reserve  balances
with the  Federal  Reserve  Bank.  The  total  required  reserve  balances  were
$6,801,000 and $10,059,000 as of December 31, 2004 and 2003, respectively.

5. INVESTMENT SECURITIES (in thousands)

<TABLE>
<CAPTION>
                                                                              December 31, 2004
                                                      -----------------------------------------------------------------
Securities classified as Available for Sale                                                       Gross        Gross
                                                      Amortized      Market       Weighted     Unrealized    Unrealized
Type and maturity                                       Cost          Value      Avg. Yield       Gains        Losses
-----------------------------------------------------------------------------------------------------------------------
<S>                                                   <C>           <C>                <C>     <C>           <C>
U.S. Treasury securities and obligations of other
  U.S. Government agencies and corporations
    Within one year ...............................   $   7,072     $   7,056          2.51%   $        8    $      (24)
    After one year but within five years ..........     127,151       125,874          2.81            29        (1,306)
    After five years but within ten years .........          --            --            --            --            --
    After ten years ...............................          --            --            --            --            --
Obligations of state and political subdivisions
    Within one year ...............................      31,449        31,483          2.43            96           (62)
    After one year but within five years ..........      43,614        43,824          3.00           516          (306)
    After five years but within ten years .........         200           201          3.37             1            --
    After ten years ...............................       5,365         5,411          3.84            51            (5)
Corporate and other securities
    Within one year ...............................       1,048         1,045          3.81            --            (3)
    After one year but within five years ..........       2,100         2,090          3.84             7           (17)
    After five years but within ten years .........         200           200          4.36            --            --
    After ten years ...............................         687           699          8.63            12            --
Mortgage-backed securities
    Within one year ...............................         131           131          4.10            --            --
    After one year but within five years ..........      19,591        19,631          4.08            86           (46)
    After five years but within ten years .........      17,905        18,051          3.80           162           (16)
    After ten years ...............................      49,363        49,868          3.96           517           (12)
Common stock ......................................      16,679        22,415           N/M         5,736            --
                                                      -----------------------------------------------------------------
Total .............................................   $ 322,555     $ 327,979          3.16%   $    7,221    $   (1,797)
                                                      =================================================================
</TABLE>


                              Omega Financial Corporation 2004 Annual Report  37
<PAGE>

<TABLE>
<CAPTION>
                                                                              December 31, 2003
                                                      -----------------------------------------------------------------
Securities classified as Available for Sale                                                       Gross        Gross
                                                      Amortized      Market       Weighted      Unrealized   Unrealized
Type and maturity                                       Cost          Value      Avg. Yield       Gains        Losses
-----------------------------------------------------------------------------------------------------------------------
<S>                                                   <C>           <C>                <C>      <C>          <C>
U.S. Treasury securities and obligations of other
  U.S. Government agencies and corporations
    Within one year ...............................   $  68,450     $  69,230          4.10%    $     780    $       --
    After one year but within five years ..........      49,478        49,100          2.65           205          (583)
    After five years but within ten years .........          --            --            --            --            --
    After ten years ...............................          --            --            --            --            --
Obligations of state and political subdivisions
    Within one year ...............................      31,789        32,062          2.94           274            (1)
    After one year but within five years ..........      67,213        68,766          2.76         1,691          (138)
    After five years but within ten years .........          --            --            --            --            --
    After ten years ...............................          --            --            --            --            --
Corporate and other securities
    Within one year ...............................         541           549          3.24             9            (1)
    After one year but within five years ..........       2,360         2,362          3.17            14           (12)
    After five years but within ten years .........          --            --            --            --            --
    After ten years ...............................          --            --            --            --            --
Mortgage-backed securities
    Within one year ...............................          --            --            --            --            --
    After one year but within five years ..........         713           732          4.80            19            --
    After five years but within ten years .........          --            --            --            --            --
    After ten years ...............................         585           600          4.57            15            --
Common stock ......................................      11,397        17,138           N/M         5,741            --
                                                      -----------------------------------------------------------------
Total .............................................   $ 232,526     $ 240,539          3.19%    $   8,748    $     (735)
                                                      =================================================================
</TABLE>

<TABLE>
<CAPTION>
                                                                              December 31, 2002
                                                      -----------------------------------------------------------------
Securities classified as Available for Sale                                                       Gross        Gross
                                                      Amortized      Market       Weighted      Unrealized   Unrealized
Type and maturity                                       Cost          Value      Avg. Yield       Gains        Losses
-----------------------------------------------------------------------------------------------------------------------
<S>                                                   <C>           <C>                <C>      <C>          <C>
U.S. Treasury securities and obligations of other
  U.S. Government agencies and corporations
    Within one year ...............................   $  60,847     $  61,749          3.84%    $     902    $       --
    After one year but within five years ..........      71,123        73,629          4.11         2,506            --
    After five years but within ten years .........          --            --            --            --            --
    After ten years ...............................          --            --            --            --            --
Obligations of state and political subdivisions
    Within one year ...............................      31,094        31,577          4.13           483            --
    After one year but within five years ..........      54,964        57,599          3.93         2,635            --
    After five years but within ten years .........          --            --                          --            --
    After ten years ...............................          --            --            --            --            --
Corporate and other securities
    Within one year ...............................       4,500         4,532          6.03            32            --
    After one year but within five years ..........       2,723         2,775          4.74            52            --
    After five years but within ten years .........          10            10          4.99            --            --
    After ten years ...............................          --            --            --            --            --
Mortgage-backed securities
    Within one year ...............................         993         1,009          6.84            16            --
    After one year but within five years ..........       2,021         2,101          5.02            80            --
    After five years but within ten years .........          --            --            --            --            --
    After ten years ...............................       1,116         1,136          6.74            24            (4)
Common stock ......................................      10,980        15,391           N/M         4,453           (42)
                                                      -----------------------------------------------------------------
Total .............................................   $ 240,371     $ 251,508          4.08%    $  11,183    $      (46)
                                                      =================================================================
</TABLE>

N/M = Not meaningful


38
<PAGE>

      Income on  certain  obligations  of state and  political  subdivisions  is
exempt from federal income tax. Total investment  portfolio yields computed on a
tax  equivalent  basis (using a 35% tax rate) were 3.52%,  3.79% and 4.79% as of
December 31, 2004,  2003 and 2002,  respectively.  Total weighted  average yield
does not include the common stock holdings.

      Certain  obligations  of the  U.S.  Government  and  state  and  political
subdivisions  are  pledged to secure  public  monies as  required by law and for
other   purposes.   The  carrying  value  of  the  pledged  assets  amounted  to
$229,305,000, $102,458,000 and $122,830,000 at December 31, 2004, 2003 and 2002,
respectively.

      In addition to cash received from the scheduled  maturities of securities,
some  investment  securities are sold at current market values during the course
of normal  operations.  Following  is a summary of  proceeds  received  from all
investment securities transactions,  and the resulting realized gains and losses
(in thousands):

                                        Years Ended December 31,
                                  -------------------------------------
                                     2004         2003          2002
                                  -------------------------------------
Gross proceeds from
  securities transactions ......  $ 234,152     $ 107,510     $  99,701
Securities available for sale:
  Realized gains ...............        963         1,127           412
  Realized losses ..............         --            --            --

      In  accordance  with  the  disclosure  requirements  of  EITF  03-01,  the
following  table shows gross  unrealized  losses and fair value,  aggregated  by
category and length of time that individual securities have been in a continuous
unrealized loss position, at December 31, 2004 (in thousands):

<TABLE>
<CAPTION>
                                                         Less Than 12 Months      12 Months or More
                                                        ---------------------------------------------
                                                          Fair     Unrealized     Fair     Unrealized
                                                          Value      Losses       Value      Losses
                                                        ---------------------------------------------
<S>                                                     <C>         <C>         <C>         <C>
U.S. Treasury securities and obligations of other
  U.S. Government agencies and corporations .........   $ 105,896   $     826   $  16,165   $     504
Obligations of state and political subdivisions .....      40,680         343       1,334          30
Corporate and other securities ......................       1,507           9         490          10
Mortgage-backed securities ..........................   $  14,918   $      74          --          --
                                                        ---------   ---------   ---------   ---------
Debt securities .....................................     163,001       1,252      17,989         544
Common stock ........................................          --          --          --          --
                                                        ---------------------------------------------
Total temporarily impaired securities ...............   $ 163,001   $   1,252   $  17,989   $     544
                                                        =============================================
</TABLE>

      The  unrealized   losses  noted  above  are  considered  to  be  temporary
impairments,  as all of the  investments  are debt  securities  whose decline in
value is due only to interest  rate  fluctuations.  As a result,  the payment of
contractual  cash  flows,  including  principal  repayment,   is  not  at  risk.
Management  has the intent and ability to hold these  investments  until  market
recovery  or  maturity.  Investments  with  unrealized  losses  for less than 12
months,  includes 61 investments in U.S.  Government agency debt securities,  88
investments in obligations of state and municipal  subdivisions,  10 investments
in corporate securities and 12 investments in mortgage-backed securities.  These
securities have maturity or pre-refund  dates ranging from February 2005 to June
2019. The unrealized loss position for each security ranges from .004% to 6.166%
of the  securities  amortized  cost as of December  31, 2004.  Investments  with
unrealized  losses  for 12 months  or  longer  includes  9  investments  in U.S.
Government agency debt securities, three investments in obligations of state and
municipal  subdivisions,  and four  investments in corporate  securities.  These
securities  have  maturity or  pre-refund  dates  ranging  from  January 2005 to
October 2008. The unrealized  loss position for each security  ranges from 1.50%
to 3.74% of the securities amortized cost as of December 31, 2004.

6. PORTFOLIO LOANS AND LOANS AVAILABLE FOR SALE

      Loans outstanding  (including loans available for sale) at the end of each
year consisted of the following (in thousands):

<TABLE>
<CAPTION>
                                                                              December 31,
                                              ----------------------------------------------------------------------------
                                                  2004             2003            2002            2001            2000
                                              ----------------------------------------------------------------------------
<S>                                           <C>               <C>               <C>               <C>               <C>
Commercial, financial and agricultural ....   $    271,650      $  111,471      $  116,833      $  123,938      $  118,686
Real estate--commercial ...................        501,394         338,703         293,010         262,613         229,294
Real estate--construction .................         25,301          17,598          36,690          20,736          18,305
Real estate--mortgage .....................        277,208         197,656         195,180         194,422         206,864
Home equity ...............................        133,077          90,612          92,500          92,271          98,725
Personal ..................................        107,859          32,059          45,445          65,871          78,797
Lease financing ...........................         13,387              46             172             544           1,437
Unearned Interest .........................         (1,626)             (1)            (11)            (41)           (123)
                                              ----------------------------------------------------------------------------
  Total                                       $  1,328,250      $  788,144      $  779,819      $  760,354      $  751,985
                                              ============================================================================
Non-accrual loans .........................   $      5,220      $    2,588      $    3,125      $    2,327      $    1,503
</TABLE>

      Interest  income not recorded on non-accrual  loans in 2004, 2003 and 2002
was $256,000,  $225,000 and $262,000,  respectively.  Gross interest income that
would  have  been  recorded  on  non-accrual  loans had  these  loans  been in a
performing  status was  $498,000  in 2004,  of which  $242,000  was  included in
interest income for the year ended December 31, 2004.

      The aggregate  amount of demand  deposits that have been  reclassified  as
loan  balances  at  December  31,  2004  and  2003 are  $782,000  and  $315,000,
respectively.


                              Omega Financial Corporation 2004 Annual Report  39
<PAGE>

Pledged Loans

      As of  December  31,  2004 there  were no  borrowings  outstanding  at the
Federal  Reserve.  However,  1-4 family mortgage loans are pledged as collateral
for any Federal  Reserve  Discount Window  borrowings.  The balance of the loans
pledged for this purpose at December 31, 2004 was $8,499,000,  with a collateral
value of $7,649,000.

      Omega must maintain sufficient Qualifying Collateral with the Federal Home
Loan Bank (FHLB), in order to secure all loan and credit products.  Therefore, a
Master  Collateral  Agreement  has been entered into which  pledges all mortgage
related  assets as collateral  for future  borrowings.  Mortgage  related assets
could include loans or investments. As of December 31, 2004, the amount of loans
included in Qualifying  Collateral was  $351,359,000,  for a collateral value of
$295,619,000.

7. ALLOWANCE FOR LOAN LOSSES

      To provide  for the risk of loss  inherent  in the  process  of  extending
credit,  Omega  maintains an allowance  for loan losses and for  lending-related
commitments.  In the  fourth  quarter  of 2004,  the  allowance  for  losses  on
lending-related  commitments was reclassified from the allowance for loan losses
to other liabilities.

      A summary of the  transactions  in the  allowance  for loan losses for the
last five years (in  thousands)  is shown below.  The activity for 2004 reflects
the allowance recorded by Sun and transferred to Omega for loans acquired in the
acquisition.  Subsequent to the  acquisition,  Omega sold  $67,028,000  of lease
financing  loans  acquired from Sun and  reclassified a portfolio of mobile home
loans also acquired from Sun totaling  $22,515,000  to loans held for sale,  and
reflected a  charge-off  against the  allowance  for loan losses of  $1,475,000,
which is included in personal  and lease  financing  loans  below.  In addition,
during the fourth quarter Omega took a charge-off of $1,006,000  (accounting for
$681,000 of the  commercial  real estate  charge-off  and $325,000 of commercial
business  charge-off)  for a  commercial  loan which was subject to a bankruptcy
liquidation:

<TABLE>
<CAPTION>
                                                                             Years Ended December 31,
                                                        ------------------------------------------------------------------
                                                          2004           2003          2002          2001          2000
                                                        ------------------------------------------------------------------
<S>                                                     <C>            <C>           <C>           <C>           <C>
Balance of allowance--beginning of period ...........   $  10,569      $  11,052     $  11,224     $  11,622     $  11,865
Loans charged off:
  Commercial, financial and agricultural ............         672            134            25           188           329
  Real estate--commercial ...........................         698            176           219           403           114
  Real estate--mortgage .............................         907            126            88            40            --
  Personal and lease financing loans ................       1,445            561           602           595           398
                                                        ------------------------------------------------------------------
    Total charge-offs ...............................       3,722            997           934         1,226           841
Recoveries of loans previously charged off:
  Commercial, financial and agricultural ............           8             11            57            28            45
  Real estate--commercial ...........................          17              3             7           236             6
  Real estate--mortgage .............................           6             60             2             3            --
  Personal and lease financing loans ................         152             90            66            61           119
                                                        ------------------------------------------------------------------
    Total recoveries ................................         183            164           132           328           170
                                                        ------------------------------------------------------------------
Net charge-offs .....................................       3,539            833           802           898           671
Provision (credit) for loan losses ..................        (300)           350           630           500           428
Allowance acquired through bank purchase ............       9,505             --            --            --            --
Reclassification of Off Balance Sheet Liability......        (591)            --            --            --            --
                                                        ------------------------------------------------------------------
Balance of allowance--end of period .................   $  15,644      $  10,569     $  11,052     $  11,224     $  11,622
                                                        ------------------------------------------------------------------
Ratio of net charge-offs during period to
average loans outstanding ...........................        0.38%          0.11%         0.10%         0.12%         0.09%
                                                        ==================================================================
</TABLE>

      Omega  has  certain  loans  in its  portfolio  that are  considered  to be
impaired in  accordance  with SFAS No. 114 as amended by SFAS No. 118. It is the
policy of the Corporation to recognize income on impaired loans on a cash basis,
only to the extent that it exceeds principal  balance  recovery.  Following is a
summary of impaired loan data as of the date of each balance sheet presented.

<TABLE>
<CAPTION>
                                                                                    December 31,
                                                                      ---------------------------------------
                                                                          2004         2003           2002
                                                                      ---------------------------------------
<S>                                                                   <C>           <C>           <C>
Impaired loans:
  Recorded investment at period end ...............................   $ 2,475,000   $   729,000
  Impaired loan balance for which there is a related allowance ....       755,000       226,000
  Impaired loan balance for which there is no related allowance ...     1,720,000       503,000
  Average recorded investment .....................................     1,597,000     1,348,000
Interest income recognized (on a cash basis) ......................   $    55,000   $    12,000   $     4,000
</TABLE>


40
<PAGE>

8. BANK-OWNED LIFE INSURANCE

      Omega  has  purchased  bank-owned  life  insurance  (BOLI),  with  a  cash
surrender  value of $72,845,000  and  $37,134,000 at December 31, 2004 and 2003,
respectively.  The cash  surrender  value on the BOLI  increased by  $1,581,000,
$1,395,000 and $1,523,000 in 2004,  2003 and 2002,  respectively,  from earnings
recorded as  non-interest  income.  The  remaining  increase of  $34,130,000  is
attributable  to the cash  surrender  value of bank-owned  life insurance of Sun
Bancorp,  Inc, as of the date of their  acquisition  by Omega.  The policies are
owned by Omega in various insurance  companies.  The credit rate on the policies
varies annually based on the insurance company's investment portfolio returns in
their  general  fund and market  conditions.  The coverage can be moved from any
carrier with no penalties or surrender charges.

9. PREMISES AND EQUIPMENT

      Premises and equipment consist of the following (in thousands):

                                                     December 31,
                                   Estimated    ----------------------
                                  Useful Life     2004        2003
                                  ------------------------------------
Land ..........................            --   $   5,905    $   2,335
Premises and leasehold
  improvements ................    5-40 years      32,810       19,352
Furniture, computer software
  and equipment ...............    3-20 years      25,513       20,343
Construction in progress ......            --       1,606          402
                                                ---------    ---------
                                                   65,834       42,432
Less: Accumulated
  depreciation ................                   (30,325)     (28,084)
                                                ----------------------
                                                $  35,509    $  14,348
                                                ======================

      Depreciation  expense on premises and equipment  charged to operations was
$2,667,000 in 2004, $2,278,000 in 2003 and $2,116,000 in 2002.

10. TIME DEPOSITS

      Time deposits consist of the following (in thousands):

                                                   December 31,
                                             ------------------------
                                                2004          2003
                                             ------------------------
Time deposits $100,000 or greater .........  $  103,472    $   50,402
Other time deposits .......................     473,430       281,940
                                             ------------------------
                                             $  576,902    $  332,342
                                             ========================

      Aggregate  amount of scheduled  maturities of time deposits as of December
31, 2004 include the following (in thousands):

                                                 Time Deposits
                                            -----------------------
                                             $100,000
Maturing in:                                or Greater      Other
                                            -----------------------
  2005 .................................    $   53,880   $  243,353
  2006 .................................        22,603      102,757
  2007 .................................        18,620       81,481
  2008 .................................         4,752       24,447
  2009 .................................         3,482       19,474
  Later ................................           135        1,918
                                            -----------------------
                                            $  103,472   $  473,430
                                            =======================

11. BORROWINGS

      Borrowings consist of the following (in thousands):

                                                            December 31,
                                                      ------------------------
                                                         2004          2003
                                                      ------------------------
Short-Term Borrowings:
Retail repurchase agreements .....................    $   63,541    $   18,263
Note payable to Federal Home Loan Bank,
  with fixed rate of 2.08% .......................        10,000        10,000
Note payable to Federal Home Loan Bank,
  with variable rate payable at LIBOR
  plus 8 basis points and prime less
  271 basis points ...............................            --         5,000
Note payable to Federal Home Loan Bank,
  with variable rate payable at CMT plus
  72 basis points ................................         2,000            --
Note payable to another financial institution
  with a fixed interest rate of 1.90% ............         4,700            --
Demand note, payable to another financial
  institution with variable interest rate
  payable at one month LIBOR plus
  175 basis points ...............................        10,000            --
Note payable to GMAC, with fixed
  rate of 0% .....................................            18            --
                                                      ------------------------
                                                      $   90,259    $   33,263
                                                      ========================

Long-Term Debt:
Notes payable to Federal Home Loan Bank,
  with fixed rates between 2.65%
  and 6.80% ......................................    $   25,373    $   21,563
Notes payable to Federal Home Loan Bank,
  with variable rates between 4.63% and
  5.15%(a) .......................................        55,153            --
Note payable to another financial institution
  with variable interest rate at three month
LIBOR plus 125 basis points ......................        12,000            --
Notes payable to another financial institution
  with fixed interest rates of 2.47%
  and 2.90% ......................................         7,053            --
Note payable to GMAC, with fixed
  rate of 0% .....................................            --            37
                                                      ------------------------
                                                      $   99,579    $   21,600
                                                      ========================
ESOP Debt Guarantee ..............................    $    2,192    $    2,521

(a)   Borrowings  are  currently  at a fixed rate but may be  converted,  at the
      FHLB's option, to an adjustable-rate loan. When converted,  interest rates
      would be three-month  LIBOR plus between 11 and 14 basis points.  In March
      2005,  Omega  extinguished  this  indebtedness  completing  its systematic
      program of reducing the leverage of Sun's  balance  sheet  acquired in the
      acquisition. The final extinguishment resulted in a $1,043,000 gain.


                              Omega Financial Corporation 2004 Annual Report  41
<PAGE>

      Omega has  repurchase  agreements  with several of its  depositors,  under
which  customers'  funds are invested  daily into an interest  bearing  account.
These funds are carried by the  Corporation  as  short-term  debt. It is Omega's
policy to have  repurchase  agreements  collateralized  100% by U.S.  Government
securities.  The  interest  rate paid on these funds is variable  and subject to
change monthly.

      The fixed rate  short-term  note payable,  as of December 31, 2004, in the
amount of $10,000,000 with the Federal Home Loan Bank matured in January of 2005
and was initiated to match fund commercial loans.

      Long-term  notes  payable to the  Federal  Home Loan Bank have  maturities
ranging from 2006 through 2013.

      Omega's current total  borrowing  capacity with the Federal Home Loan Bank
of Pittsburgh is $169,844,000,  with $89,756,000  drawn as of December 31, 2004.
The Federal Home Loan Bank is a source of both short-term and long-term funding.
The Corporation must maintain sufficient qualifying  collateral,  as defined, to
secure all outstanding advances.

      Omega has lines of credit established with various financial  institutions
for  overnight  funding  needs.  These lines  provided a total  availability  of
$25,000,000 in 2004 and 2003,  with interest  payable at the daily federal funds
rate.  There were no  borrowings on December 31, 2004 or December 31, 2003 under
these credit facilities.

      Omega  guarantees  debt incurred by the Employee Stock Option Plan (ESOP).
This loan  carries a fixed rate of 5.90%  through its  maturity  date of July 1,
2010, and is collateralized  by a mortgage on the  Corporation's  administration
center. (See Note 22).

12. JUNIOR SUBORDINATED DEBT AND
    TRUST PREFERRED SECURITIES

      On September  20,  2004,  Omega formed  Omega  Financial  Capital  Trust I
(Capital  Trust I).  Capital  Trust I was  formed  for the  purpose  of  issuing
$36,000,000  in trust  preferred  securities  through a pooled  trust  preferred
program.  The  Trust  Preferred  Securities  were  issued  and  sold in  private
placement offerings.  The proceeds from the sale thereof were invested in Junior
Subordinated   Deferrable   Interest   Debentures   issued  by  Omega  Financial
Corporation.  All proceeds from the sale of the Trust  Preferred  Securities and
the  common  securities  issued  by  Capital  Trust  I are  invested  in  Junior
Subordinated  Debentures,  which  are the sole  assets of the  Capital  Trust I.
Capital  Trust I pays  dividends on the Trust  Preferred  Securities at the same
rate as the distributions  paid by Omega on the Junior  Subordinated  Debentures
held by the Capital Trust I. Capital  Trust I provides  Omega with the option to
defer payment of interest on the  debentures  for an aggregate of 20 consecutive
quarterly  periods.  If this  option  is  used,  Omega  may not  declare  or pay
dividends  on its common  stock  during  any such  period.  The Trust  Preferred
Securities are  guaranteed by Omega  pursuant to a guarantee  issued by Omega in
favor of the Wilmington Trust as trustee for the trust.

      With the Sun  acquisition  on October 1, 2004,  Omega now owns Sun Bancorp
Statutory  Trust I (Sun Trust I), a trust that was formed by Sun for the purpose
of issuing  $16,500,000 in trust preferred  securities  through a similar pooled
trust preferred program. These Trust Preferred Securities were originally issued
and  sold in  private  placement  offerings,  with  the  proceeds  from the sale
invested in Junior Subordinated Deferrable Interest Debentures originally issued
by Sun. All proceeds  from the sale of the Trust  Preferred  Securities  and the
common  securities  issued by Sun Trust I are  invested  in Junior  Subordinated
Debentures,  which are the sole assets of the Trust.  Sun Trust I pays dividends
on the Trust Preferred  Securities at the same rate as the distributions paid by
Omega on the  Junior  Subordinated  Debentures  held by the  Trust.  Sun Trust I
provides  Omega with the option to defer  payment of interest on the  debentures
for an aggregate of up to 10 consecutive  semi-annual periods. If this option is
used, Omega may not declare or pay dividends on its common stock during any such
period.  The Trust  Preferred  Securities  are guaranteed by Omega pursuant to a
guarantee issued by Omega in favor of the U.S. Bank as trustee for the trust.

      Omega  accounts  for  Capital  Trust I and Sun Trust I  (collectively  the
"Trusts") under the provisions of FIN 46. The Trusts are special purpose trusts,
formed for the issuance of trust preferred  securities to outside  investors and
Omega does not absorb a majority of the expected  losses or residual  returns of
the Trusts.  The Trusts are not  consolidated  and therefore the Trust Preferred
Securities are not included in the Corporation's Consolidated Balance Sheet. The
Junior Subordinated Debt obligations to the special purpose trusts are presented
as a separate category of long-term debt on the Consolidated  Balance Sheet. The
equity  investment  in  the  common  stock  of the  special  purpose  trusts  is
recognized as an investment in  unconsolidated  subsidiaries on the Consolidated
Balance Sheet.

      The Trust Preferred securities and the Junior Subordinated Debt associated
with Capital Trust I carry a fixed  interest  rate of 5.98% through  October 18,
2009 and a variable rate equal to LIBOR plus 2.19%  thereafter.  The  securities
are  redeemable  at par at anytime  after  October 18, 2009.  Proceeds  from the
issuance  of the  junior  subordinated  debt were  used to fund the Sun  Bancorp
acquisition on October 1, 2004.

      The Trust Preferred securities and the Junior Subordinated Debt associated
with Sun  Trust I carry a fixed  interest  rate of  8.64%.  The  securities  are
redeemable at par at anytime after February 22, 2011, and at a declining premium
annually of 105.10% to 100%.


42
<PAGE>

      The Federal  Reserve  Board  currently  allows bank  holding  companies to
include trust  preferred  securities,  up to a certain limit, in Tier 1 Capital.
The following  table shows Omega's Trust  subsidiaries  with  outstanding  Trust
Preferred Securities as of December 31, 2004:

                                      As of December 31, 2004
                                 ----------------------------------
                                 Capital Trust I       Sun Trust I
                                 ----------------------------------
                                           (In thousands)
Trust preferred securities ..        $    36,000        $    16,500
Common securities ...........              1,114                511
Junior subordinated debt ....             37,114             20,076
Stated maturity date ........         10/18/2034         02/22/2031
                                                          Annually
                                                          beginning
                                                          2/22/2011
Optional redemption date ....         10/18/2009         At various
                                                         redemption
                                                           prices
Rate ........................   5.98% until October            8.64%
                                2009, then variable
                                 at LIBOR plus 219
                                    basis points

13. OPERATING LEASE OBLIGATIONS

      The Corporation has entered into a number of leasing arrangements that are
classified  as operating  leases.  The operating  leases are for several  branch
locations,  automatic teller machines (ATM) and computer equipment. The majority
of the branch location and ATM leases are renewable at the Corporation's option.
In  addition,  future  rental  payments on many of the branch and ATM leases are
subject to change in relation  to  fluctuations  in the  Consumer  Price  Index.
Future minimum lease commitments are based on current rental payments.

      The following is a summary of future minimum rental  payments for the next
five years  required  under  operating  leases  that have  initial or  remaining
noncancellable  lease  terms in excess of one year as of  December  31, 2004 (in
thousands):

Years Ending December 31,
2005 ..............................................     $    527
2006 ..............................................          413
2007 ..............................................          338
2008 ..............................................          217
2009 ..............................................          188
Later years .......................................          671
                                                        --------
Total minimum payments required ...................     $  2,354
                                                        ========

      Rental  expense  charged  to  operations,  net  of  sublease  income,  was
$277,000,  $218,000 and  $206,000 in 2004,  2003 and 2002,  respectively,  which
includes short-term cancellable leases.

14. GOODWILL AND OTHER INTANGIBLE ASSETS

      During 2004,  Omega  acquired  goodwill and additional  intangible  assets
through its acquisition of Sun Bancorp,  Inc. Omega has finite-lived  intangible
assets  capitalized  on its balance sheet  pertaining to core deposit,  customer
relationships  and trade names.  The weighted  average life of the  finite-lived
intangible  assets is eleven years.  The estimates  included in the valuation of
the core deposit intangible are generally consistent with the runoff experienced
to date on the acquired deposits.

      Goodwill  acquired on October 1, 2004 and carried on the balance sheet was
$156,959,000. Impairment testing will take place at least annually, beginning in
2005.

      A summary of intangible assets at December 31 follows (in thousands):

                                                2004       2003
                                              -------------------
Core deposit intangible:
  Gross carrying amount ...................   $ 14,368   $    157
  Less: Accumulated amortization ..........        441        107
                                              -------------------
  Net carrying amount .....................     13,927         50
Customer relationship intangibles:
  Gross carrying amount ...................      2,700         --
  Less: Accumulated amortization ..........         61         --
                                              -------------------
  Net carrying amount .....................      2,639         --
Trade name intangible with finite life:
  Gross carrying amount ...................         36         --
  Less: Accumulated amortization ..........          6         --
                                              -------------------
  Net carrying amount .....................         30         --
Total finite-lived intangibles:
  Gross carrying amount ...................     17,104        157
  Less: Accumulated amortization ..........        508        107
                                              -------------------
  Net carrying amount .....................   $ 16,596   $     50
Trade name intangible with infinite life:
  Gross carrying amount ...................   $    130         --

      Amortization expense for core deposits and other intangibles recognized in
non-interest  expense  included  $402,000,  $10,000  and $10,000 for years ended
December 31, 2004, 2003 and 2002, respectively.  Intangible amortization expense
projected  for the  succeeding  five years  beginning in 2005 is estimated to be
$1,600,000 per year.

15. INCOME TAXES

      The  components  of income tax expense for the three years ended  December
31, 2004 were (in thousands):

                                     2004         2003         2002
                                   ---------------------------------
Current tax expense ...........    $ 3,007      $ 5,308      $ 5,767
Deferred tax expense ..........      2,315         (482)        (117)
                                   ---------------------------------
Total tax expense .............    $ 5,322      $ 4,826      $ 5,650
                                   =================================

      Income tax expense  related to realized  securities  gains was $337,000 in
2004, $394,000 in 2003 and $144,000 in 2002.


                              Omega Financial Corporation 2004 Annual Report  43
<PAGE>

      The  reasons  for the  differences  between the income tax expense and the
amount  computed by applying the  statutory  federal  income tax rate to pre-tax
earnings are as follows:

                                          Years Ended December 31,
                                         -------------------------
                                         2004      2003       2002
                                         -------------------------
Federal tax at statutory rate ........   35.0%     35.0%      35.0%
Tax exempt income ....................   (5.6)     (7.4)      (7.5)
Bank-owned life insurance earnings ...   (2.5)     (2.2)      (2.2)
ESOP stock dividends .................   (1.4)     (1.3)      (0.3)
Low income housing credits ...........   (1.0)     (0.3)      (0.4)
Other, net ...........................   (1.1)     (1.9)      (0.9)
                                         -------------------------
Effective rate .......................   23.4%     21.9%      23.7%
                                         =========================

      Deductible  temporary  differences and taxable temporary  differences gave
rise to a net deferred tax asset for Omega as of December 31, 2004 and 2003. The
components  giving rise to the net  deferred  tax asset are  detailed  below (in
thousands):

                                             December 31,
                                       ------------------------
                                          2004          2003
                                       ------------------------
Deferred Tax Assets
  Loan loss reserve ................   $    5,682    $    3,699
  Deferred compensation ............        1,682         1,356
  Employee benefits ................          286           314
  Intangible amortization ..........        2,481            --
  Low income housing investments ...          409            --
  Net operating loss carryforward ..        4,862            --
  Tax credit carryforwards .........        2,971            --
  Other ............................          608            85
                                       ------------------------
  Total deferred tax assets ........       18,981         5,454
Deferred Tax Liabilities
  Depreciation .....................       (1,160)         (252)
  Unrealized net gains on securities       (1,899)       (3,005)
  Purchase accounting adjustments ..       (2,907)           --
  Leases (net) .....................       (1,877)          (21)
  Low income housing investments ...           --          (178)
  Other ............................         (360)         (116)
                                       ------------------------
  Total deferred tax liabilities ...       (8,203)       (3,572)
                                       ------------------------
Net deferred tax asset
  included in other assets .........   $   10,778    $    1,882
                                       ========================

      Omega has concluded that the deferred tax assets are realizable (on a more
likely than not basis) through the  combination of future  reversals of existing
taxable  temporary  differences,  carryback  availability,  certain tax planning
strategies and expected future taxable income.

16. SHAREHOLDERS' EQUITY

      The corporation is authorized to issue 5,000,000 shares of preferred stock
with a par  value of $5.00 per  share.  The  Board  has the  ability  to fix the
voting, dividend,  redemption and other rights of the preferred stock, which can
be issued in one or more series.

      In 1990,  there  were  219,781  shares of Class A  cumulative  convertible
preferred  stock issued to Omega's  Employee  Stock  Ownership Plan (ESOP) for a
total of $5,000,000.  The preferred  stock was  convertible  into Omega's common
stock at the rate of 1.575  common  shares  for one  preferred  share in certain
events.  The preferred stock was restricted to the ESOP and could be redeemed by
the  Corporation  at any time.  Dividends on the  preferred  stock were fixed at
$1.80 per share per year,  and were  required  to be paid prior to any  dividend
payments on the common stock.  The preferred stock had preference in liquidation
over the  common  stock in the amount of $22.75  per  share,  plus all  dividend
arrearages,  prior  to  payments  to  common  shareholders.  The  holder  of the
preferred stock was entitled to 1.575 votes for each share held.

      In October 2003, the ESOP Trustees  elected to convert the preferred stock
into 346,155 shares of Omega's common stock.  The decision was based on the fact
that the common stock  dividend on converted  shares then exceeded the preferred
stock dividend.

      In March of 2004, the Board approved a share  repurchase  program to begin
immediately,  authorizing management to buy back an additional 10% of its common
stock. At that time, there were 8,483,950 common shares outstanding with 848,395
shares  eligible  to be  repurchased.  This  program  was no longer in effect at
December  31,  2004.  While the  program was in effect,  73,212  shares had been
repurchased in conjunction with this program.

      As a result of the  acquisition  of Sun Bancorp,  Inc. on October 1, 2004,
4,117,116  shares of Omega  common stock were issued,  of which  1,659,545  were
issued from treasury.


44
<PAGE>

17. CALCULATION OF EARNINGS PER SHARE

     The  following  table shows the  calculation  of earnings per share for the
years ended  December 31, 2004,  2003 and 2002 (in  thousands,  except per share
data):

<TABLE>
<CAPTION>
                                                                      Years Ended December 31,
                                 ---------------------------------------------------------------------------------------------------
                                              2004                              2003                              2002
                                 ---------------------------------------------------------------------------------------------------
                                  Income     Shares    Per-Share   Income      Shares    Per-Share   Income      Shares    Per-Share
                                 Numerator Denominator   Amount   Numerator  Denominator  Amount    Numerator  Denominator  Amount
                                 ---------------------------------------------------------------------------------------------------
<S>                              <C>             <C>    <C>       <C>              <C>    <C>       <C>              <C>    <C>
Net income                       $  17,021                        $  17,185                         $  18,179
Less: Preferred stock dividends         --                             (297)                             (396)
                                 ---------                        ---------                         ---------
Basic EPS
Income available to
  common shareholders .........     17,021       9,484  $   1.79     16,888        8,169  $   2.07     17,783        8,189  $   2.17
                                                        ========                          ========                          ========
Effect of Dilutive Securities
Impact of:
  Assumed conversion of
    preferred to common stock .                     --                               272                               346
  Assumed exercises of
    outstanding options .......                     95                                83                                86
  Preferred stock dividends
    available to common
    shareholders ..............         --                              297                               396
  Elimination of tax benefit
    of allocated preferred
    dividends .................         --                              (65)                              (80)
  Additional expense required
    to fund ESOP debt .........         --                                3                                (3)
                                 ---------------------            ----------------------            ----------------------
Diluted EPS
Income available to common
  shareholders plus
  assumed conversions .........  $  17,021       9,579  $   1.78  $  17,123        8,524  $   2.01  $  18,096        8,621  $   2.10
                                 ===================================================================================================
</TABLE>

      Certain  outstanding  stock options as of the end of each period presented
were not included in the fully diluted  earnings per share  computation  because
they  would  have been  antidilutive.  The  number of shares in this  class were
231,118, 75,266 and 6,500 on December 31, 2004, 2003 and 2002.

18. COMPREHENSIVE INCOME

      Components of other  comprehensive  income (loss) consist of the following
(in thousands):

<TABLE>
<CAPTION>
                                                                                          Year Ended December 31, 2004
                                                                                     --------------------------------------
                                                                                     Before Tax   Tax (Expense)  Net-of-Tax
                                                                                       Amount      or Benefit      Amount
                                                                                     --------------------------------------
<S>                                                                                  <C>          <C>            <C>
Unrealized gains on available for sale securities:
  Unrealized holding gains arising during the period .............................   $   (1,626)  $        569   $   (1,057)
  Less: Reclassification adjustment for gains included in net income .............         (963)           337         (626)
                                                                                     --------------------------------------
Other comprehensive income .......................................................   $   (2,589)  $        906   $   (1,683)
                                                                                     ======================================

<CAPTION>
                                                                                          Year Ended December 31, 2003
                                                                                     --------------------------------------
                                                                                     Before Tax   Tax (Expense)  Net-of-Tax
                                                                                       Amount      or Benefit      Amount
                                                                                     --------------------------------------
<S>                                                                                  <C>          <C>            <C>
Unrealized gains on available for sale securities:
  Unrealized holding gains arising during the period .............................   $   (1,997)  $        696   $   (1,301)
  Less: Reclassification adjustment for gains included in net income .............       (1,127)           394         (733)
                                                                                     --------------------------------------
Other comprehensive income .......................................................   $   (3,124)  $      1,090   $   (2,034)
                                                                                     ======================================

<CAPTION>
                                                                                          Year Ended December 31, 2002
                                                                                     --------------------------------------
                                                                                     Before Tax   Tax (Expense)  Net-of-Tax
                                                                                       Amount      or Benefit      Amount
                                                                                     --------------------------------------
<S>                                                                                  <C>          <C>            <C>
Unrealized gains on available for sale securities:
  Unrealized holding gains arising during the period .............................   $    3,955   $     (1,387)  $    2,568
  Less: Reclassification adjustment for gains included in net income .............         (412)           144         (268)
                                                                                     --------------------------------------
Other comprehensive income .......................................................   $    3,543   $     (1,243)  $    2,300
                                                                                     ======================================
</TABLE>


                              Omega Financial Corporation 2004 Annual Report  45
<PAGE>

      The  basis on which  the  amount  reclassified  out of  accumulated  other
comprehensive income into earnings was determined using the average cost method.

19. EMPLOYEE BENEFIT PLANS

Omega Stock Compensation Plans

      Omega has five stock-based compensation plans, the Employee Stock Purchase
Plan,  the Stock Option Plan (1986) (the "1986 Plan"),  the 1996 Employee  Stock
Option Plan (the "1996  Plan"),  the  Non-Employee  Director  Stock  Option Plan
(1994)  (the  "1994  Plan")  and the 2004  Stock  Option  Plan for  Non-Employee
Directors  (the "2004  Plan").  The 1996 Plan replaced the 1986 Plan pursuant to
which no options were issuable  after 1996. The 2004 Plan replaced the 1994 Plan
pursuant to which no options were issuable after 2004.  Omega accounts for these
plans  under APB  Opinion  No. 25,  under  which no  compensation  cost has been
recognized.  Had  compensation  cost for these plans been determined  consistent
with the fair value method  under SFAS No. 148,  Omega's net income and earnings
per share would have been reduced to the amounts disclosed in Note 1.

      These  computations  were derived using the  Black-Scholes  option-pricing
model with the following  weighted average  assumptions used for options granted
in 2004, 2003 and 2002:

                                   Employee     Employee      Director
                                    Stock         Stock        Stock
                                   Purchase      Option        Option
                                     Plan      Plan (1996)      Plan
                                   -----------------------------------
Options Granted in 2004
  Expected life of options .....    1 year       6 years       9 years
  Risk-free interest rate ......      2.75%         3.63%         3.87%
  Expected volatility ..........     25.15%        34.56%        35.09%
  Expected dividend yield ......      3.23%         3.23%         3.23%

                                   Employee     Employee      Director
                                    Stock         Stock        Stock
                                   Purchase      Option        Option
                                     Plan      Plan (1996)      Plan
                                   -----------------------------------
Options Granted in 2003
  Expected life of options .....    1 year       6 years       6 years
  Risk-free interest rate ......      1.26%         3.07%         2.74%
  Expected volatility ..........     20.31%        34.14%        34.24%
  Expected dividend yield ......      3.39%         3.38%         3.38%

                                   Employee     Employee      Director
                                    Stock         Stock        Stock
                                   Purchase      Option        Option
                                     Plan      Plan (1996)      Plan
                                   -----------------------------------
Options Granted in 2002
  Expected life of options .....    1 year       6 years       6 years
  Risk-free interest rate ......      1.32%         3.07%         3.07%
  Expected volatility ..........     18.21%        34.10%        34.10%
  Expected dividend yield ......      3.74%         3.74%         3.74%

      The  Employee  Stock  Purchase  Plan  ("ESPP")  is   administered  by  the
Compensation Committee  ("Committee") of the Omega Board of Directors ("Board"),
consisting  of members who are not eligible to receive  options  under the ESPP.
The Committee is  authorized to grant options to purchase  common stock of Omega
to all  employees  of  Omega  and its  subsidiaries  who  meet  certain  service
requirements. The ESPP qualifies as a non-compensatory plan under Section 423 of
the Internal  Revenue Code. All options  granted under the ESPP are  immediately
vested.  For 27 months following the date of the grant,  options are exercisable
at the lesser of 90% of the fair market value of the shares on the date of grant
or 90% of the fair market  value on the date of exercise.  After 27 months,  the
options are  exercisable  at 90% of the fair market value on the exercise  date.
Outstanding  options are  scheduled to expire  through  December  31, 2009.  The
aggregate  number of shares  which may be issued  upon the  exercise  of options
under this plan is 1,125,000  shares.  All ESPP options  outstanding at December
31, 2004 have current exercise prices of $31.40 and a weighted average remaining
contractual life of 3.93 years. All of these options are exercisable.

      The  1986  Plan  and  the  1996  Plan   (collectively,   the  "SOPs")  are
administered by the Committee, whose members are not eligible to receive options
under the SOPs. The Committee determines, among other things, which officers and
key employees will receive  options,  the number of shares to be subject to each
option,  the option price and the duration of the option.  Options vest over one
year and are  exercisable  at the fair  market  value of the  shares  at date of
grant.  These  options are  scheduled  to expire  through  January 1, 2014.  The
aggregate number of shares that may be issued upon the exercise of options under
the 1996 Plan is 1,500,000 shares. The SOPs options  outstanding at December 31,
2004 have exercise  prices  between $16.33 and $51.64,  with a weighted  average
exercise price of $31.49 and a weighted  average  remaining  contractual life of
5.34 years.  584,459 of these options are  exercisable;  their weighted  average
exercise price is $31.46.

      The 1994 Plan and the 2004 Plan  (collectively  the "Director  Plans") are
administered  by the  Board.  Options  are  granted  automatically  each year to
non-employee  directors of Omega. Options vest over one year and are exercisable
at the fair market value of the shares at the date of grant.  These  options are
scheduled to expire through May 1, 2014. The aggregate number of shares that may
be issued upon the exercise of options  under the 2004 Plan is 50,000.  Director
Plans  options  outstanding  at December 31, 2004 have exercise  prices  between
$16.90  and  $50.75,  with a  weighted  average  exercise  price of $31.27 and a
weighted  average  remaining  contractual  life of 3.20  years.  62,171 of these
options are exercisable; their weighted average exercise price is $31.16.

      Based on terms of the  Merger  Agreement  with Sun  Bancorp,  all  options
outstanding from Sun's plans were substituted with Omega options. Conversion was
made based upon the stock exchange ratio of 0.664 shares of Omega for 1 share of
Sun.  Option  prices  were  converted  using the same ratio.  All  options  were
converted as 100% vested on October 1, 2004,  with all remaining terms the same.
A total of 257,511 shares were added to Omega's  outstanding options as a result
of this transaction.


46
<PAGE>

      A summary of the status of Omega's five stock-based  compensation plans as
of December  31,  2004,  2003 and 2002,  and changes  during the years ending on
those dates is presented below:

<TABLE>
<CAPTION>
                                                   2004                          2003                          2002
                                        ---------------------------   ---------------------------   ---------------------------
                                                        Weighted                      Weighted                      Weighted
                                                        Average                       Average                       Average
Employee Stock Purchase Plan             Shares      Exercise Price    Shares      Exercise Price    Shares      Exercise Price
-------------------------------------------------------------------------------------------------------------------------------
<S>                                     <C>          <C>              <C>          <C>              <C>          <C>
Outstanding at beginning of year ....     163,499    $        32.42     158,116    $        30.57     189,647    $        27.02
Granted .............................      92,840             31.40      63,001             33.67      67,905             32.31
Acquired options ....................      32,492             31.16          --                            --
Exercised ...........................     (48,778)            29.64     (41,493)            29.34     (79,719)            26.83
Forfeited ...........................     (24,011)            28.98     (16,125)            33.48     (19,717)            28.66
                                        ---------                     ---------                     ---------
Outstanding at end of year ..........     216,042             31.40     163,499             32.42     158,116             30.57
                                        =========                     =========                     =========
Options exercisable at year-end .....     216,042                       163,499                       158,116
Weighted average fair value of
  options granted during the year ...   $    7.95                     $    7.67                     $    7.06

<CAPTION>
                                                   2004                          2003                          2002
                                        ---------------------------   ---------------------------   ---------------------------
                                                        Weighted                      Weighted                      Weighted
                                                        Average                       Average                       Average
Employee Stock Option Plans              Shares      Exercise Price    Shares      Exercise Price    Shares      Exercise Price
-------------------------------------------------------------------------------------------------------------------------------
<S>                                     <C>          <C>              <C>          <C>              <C>          <C>
Outstanding at beginning of year ....     444,981    $        29.62     435,803    $        27.73     455,167    $        25.58
Granted .............................      59,260             37.41      68,766             35.90      72,322             32.05
Acquired options ....................     182,887             33.61          --                            --
Exercised ...........................     (33,846)            25.55     (55,088)            22.61     (79,734)            18.70
Forfeited ...........................      (9,563)            39.53      (4,500)            28.42     (11,952)            32.44
                                        ---------                     ---------                     ---------
Outstanding at end of year ..........     643,719             31.49     444,981             29.62     435,803             27.73
                                        =========                     =========                     =========
Options exercisable at year-end .....     584,459                       376,215                       363,481
Weighted average fair value of
  options granted during the year ...   $   10.33                     $    9.31                     $    7.94

<CAPTION>
                                                   2004                          2003                          2002
                                        ---------------------------   ---------------------------   ---------------------------
                                                        Weighted                      Weighted                      Weighted
                                                        Average                       Average                       Average
Director Stock Option Plans              Shares      Exercise Price    Shares      Exercise Price    Shares      Exercise Price
-------------------------------------------------------------------------------------------------------------------------------
<S>                                     <C>          <C>              <C>          <C>              <C>          <C>
Outstanding at beginning of year ....      25,000    $        29.71      23,200    $        28.58      20,200    $        27.95
Granted .............................       3,000             33.63       3,000             34.85       3,000             32.83
Acquired options ....................      42,132             31.11          --                            --
Exercised ...........................      (4,961)            23.44      (1,200)            20.77          --
Forfeited ...........................          --                            --                            --
                                        ---------                     ---------                     ---------
Outstanding at end of year ..........      65,171             31.27      25,000             29.71      23,200             28.58
                                        =========                     =========                     =========
Options exercisable at year-end .....      62,171                        22,000                        20,200
Weighted average fair value of
  options granted during the year ...   $   10.53                     $    8.86                     $    8.13
</TABLE>


                             Omega Financial Corporation 2004 Annual Report   47
<PAGE>

Omega Employee Stock Ownership Plan

      Omega has an Employee  Stock  Ownership  Plan  ("ESOP") for the benefit of
employees that meet certain age and service requirements.  ESOP transactions are
accounted for under SOP 76-3,  "Accounting  Practices for Certain Employee Stock
Ownership  Plans." As such,  all ESOP  shares are  considered  outstanding  when
calculating earnings per share and dividends paid on ESOP shares are treated the
same as those paid on Non-ESOP  shares.  For the years ended  December 31, 2004,
2003 and 2002,  expenses incurred under this plan were $780,000,  $1,065,000 and
$217,000,  respectively.  The  level of  annual  contributions  is based  upon a
percentage  of employee  salary  expense.  The  majority  of the funds  obtained
through  these  contributions  were used to  purchase  Omega  stock or meet debt
service on the ESOP debt (see comment  below);  in 2004,  $55,000 was applied to
debt service and no shares of Omega common stock were acquired.  In 2003, 14,438
shares of Omega common stock were acquired at a cost of $513,000 and $69,000 was
applied to debt service.  At December 31, 2004 the ESOP holds 830,269  shares of
Omega common stock, which includes 346,155 shares from the conversion of 219,781
shares of preferred  stock.  Of the 346,155 shares of leveraged  stock,  251,349
shares have been allocated to  participants of the plan as of December 31, 2004,
based upon principal repayment of the debt outstanding. Fair value of the 94,806
unallocated  shares  was  $3,308,000.  The  ESOP is  administered  by a Board of
Trustees and an  Administrative  Committee  appointed  by the Board.  All of the
Trustees are officers, employees, or directors of Omega.

      On July 1, 1990, the ESOP entered into a $5,000,000 leveraged  transaction
for the purpose of acquiring 219,781 shares of convertible  preferred stock from
the  Corporation  for $22.75 per share.  The  original  term of the loan was for
twenty  years and  carried  a fixed  interest  rate of 10.65%  for the first ten
years.  Thereafter,  the ESOP had the  option  to take a fixed  rate or  various
variable rate options for the remaining term of the loan.  Effective  January 1,
2003,  this loan was  refinanced  at a fixed rate of 5.90%  through its maturity
date  of  July  1,  2010.  The  loan  is  collateralized  by a  mortgage  on the
Corporation's administration center and the Corporation's guarantee.

      In order  to meet the  future  annual  debt  service  of  $470,000,  which
includes  principal and interest,  the ESOP will receive  dividends from 346,155
shares of common  stock  (which  was  converted  from  preferred  stock) and the
remainder  in  contributions  from the  Corporation.  In 2004,  the debt service
required was $470,000,  of which $141,000  represented interest expense incurred
by the ESOP. In 2003, the debt service required was $470,000,  of which $162,000
represented  interest expense incurred by the ESOP.  Outstanding ESOP debt as of
December 31, 2004 was  $2,192,000.  Scheduled  principal  repayments on the ESOP
debt are as follows:

2005 ...............................................................   $ 348,000
2006 ...............................................................     369,000
2007 ...............................................................     391,000
2008 ...............................................................     415,000
2009 ...............................................................     440,000
Later years ........................................................     229,000

Defined Contribution Plan

      Omega maintains a defined  contribution  plan for eligible  employees,  as
defined.  Employer  contributions  to the plan  totaled  $174,000,  $172,000 and
$1,165,000 for the years ended December 31, 2004, 2003 and 2002, respectively.

      When Sun  Bancorp  Inc.  was  acquired  on  October  1,  2004,  a  defined
contribution plan was in place for employees in that organization. This plan was
maintained  through  December  31, 2004 and  subsequently  merged  into  Omega's
existing plan as of January 1, 2005. Employer contributions to this plan totaled
$110,000 in 2004.

Supplemental Executive Retirement Plan

      The  Supplemental  Executive  Retirement  Plan ("SERP") is a non-qualified
executive benefit in which the Corporation  agrees to pay certain key executives
for a specified  period of time after  retirement.  This plan was established in
2000 and replaced the former  Executive  Supplemental  Income Plan.  The present
value of the supplemental  retirement benefits to be paid under the SERP program
is being  accrued  over the  estimated  remaining  service  period  of the three
officers  designated to receive these  benefits.  Accrued  liabilities  from the
discontinued  plan were  transferred  to the SERP,  which is  included  in Other
Liabilities. At December 31, 2004 the liability for these future obligations was
$3,100,000 as compared to December 31, 2003 when the  liability was  $3,060,000.
For the years ended  December 31, 2004,  2003 and 2002,  $339,000,  $512,000 and
$363,000,  respectively,  was  charged to  operations  in  connection  with this
program.

Supplemental Director Retirement Plan

      With the Sun Bancorp  acquisition,  Omega assumed  liabilities  to provide
supplemental  payments to certain former directors of Guaranty Bank and Steelton
Bank. Life insurance contracts are being used to fund this supplemental  payment
to the former  directors.  No expense related to this obligation was recorded in
2004. The carrying value of this future obligation included in Other Liabilities
is $713,000 as of December 31, 2004.

20. FAIR VALUE OF FINANCIAL INSTRUMENTS

      SFAS No.  107,  "Disclosure  about Fair Value of  Financial  Instruments,"
requires the  Corporation  to disclose the estimated fair value of its financial
instruments.  The fair  value  disclosures  are made  based on  relevant  market
information for financial instruments with similar repricing characteristics and
credit risk and management assumptions.  The estimated values do not reflect any
premium or discount  that may be realized from offering for sale at one time the
Corporation's entire holdings of a particular financial instrument.


48
<PAGE>

      The  following  describes the  estimated  fair value of the  Corporation's
financial instruments as well as the significant methods and assumptions used to
determine these estimated fair values.

      Carrying  values  approximate  fair  value  for cash  and due from  banks,
interest-bearing  deposits,  federal  funds sold,  interest  receivable,  demand
deposits,  savings  deposits,  short-term  borrowings,  other  interest  bearing
liabilities and interest payable given.

      Investment   Securities--The  fair  value  of  investment   securities  is
determined by reference to quoted market prices or dealer quotes (see Note 5).

      Commercial, Financial and Agricultural Loans, Real Estate-Commercial Loans
and Real Estate--Construction  Loans--These loans are made on either a floating,
adjustable  or fixed rate  basis.  The  estimated  fair value of these  loans is
determined by discounting the future contractual cash flows using rates at which
similar loans would be made to borrowers with similar credit ratings and for the
same  remaining  maturity or repricing  period.  The discount rates utilized for
these loans are indexed to either the national prime rate or the comparable U.S.
Treasury rate. Loans discounted at the prime rate have a spread of approximately
145 basis  points at December 31, 2004 and a spread of  approximately  15 to 185
basis points at December 31, 2003. Loans discounted using the U.S. Treasury rate
carry a spread of  approximately  250 basis points as of December 31, 2004 and a
spread of 235 to 275 basis points at December 31, 2003.

      Real Estate  Mortgage  Loans--This  category  is  comprised  primarily  of
residential  mortgages that are adjustable  rate mortgages  (ARMs) or fixed rate
mortgages.  The estimated fair value of these loans is arrived at by discounting
the future  contractual  cash flows,  adjusted for  prepayments,  at the current
market rate for these loans.  Prepayments,  or acceleration  of cash flows,  are
calculated at speeds at which a pool of loans with similar characteristics would
be expected to prepay.  The rates utilized for adjustable  rate  mortgages,  for
December 31, 2004 and December 31, 2003,  are  equivalent  to the U.S.  Treasury
rate for the same term  plus a spread of  approximately  290 basis  points.  The
market rate for fixed rate  mortgages  was  approximately  6.00% at December 31,
2004 and ranged from 5.85% to 6.70% at December 31, 2003.

      Home Equity  Loans--This  category is  comprised  primarily  of fixed rate
loans,  but does include home equity lines of credit that have  floating  rates.
The fair value of the fixed rate loans is  estimated by  discounting  the future
contractual  cash flows  using  rates at which  similar  loans  would be made to
borrowers for the same remaining  maturity.  The discount rate utilized for home
equity  installment  loans is the current national market rate for new mortgages
plus a spread of  approximately  30 basis points as of December 31, 2004 and -30
to 170 basis points as of December 31, 2003.  Home equity lines of credit are on
a floating basis and approximate current market rates.

      Personal Loans and Lease  Financing--This  category is comprised primarily
of fixed  rate  loans,  but does  include  personal  lines of credit  which have
floating  rates.  The fair  value  of the  fixed  rate  loans  is  estimated  by
discounting  the future  contractual  cash flows.  The discount factor for these
loans is the current national market rate for a 48-month  automobile loan plus a
spread of 50 basis points as of December 31, 2004 and a spread of 100-250  basis
points as of December 31, 2003. Personal lines of credit are on a floating basis
and approximate current market rates.

      Fixed  Rate Time  Deposits--The  estimated  fair  value is  determined  by
discounting the contractual future cash flows, using the rates currently offered
for  deposits  of similar  remaining  maturities.  The rates  utilized  for time
deposits  are  equivalent  to the U.S.  Treasury  rate for the same  term with a
spread of negative 90 basis  points to positive 35 basis  points at December 31,
2004 and a spread of 0 to 40 basis points at December 31, 2003.

      Long-Term  Debt--The  fair  value  of  long-term  debt  is  determined  by
discounting  the  contractual  cash flows at rates that  approximate the current
FHLB  borrowing  rate for  borrowings  with  similar  terms  and  maturity.  The
appropriate  FHLB borrowing rate ranged from 3.16% to 4.05% at December 31, 2004
and 2.96% to 3.70% at  December  31,  2003.  The  carrying  amounts of all other
borrowings  approximate  fair  value  due  to the  short-term  nature  of  these
instruments.  FHLB debt with  embedded  optionality  was  priced at fair  values
provided by the Federal Home Loan Bank of Pittsburgh.

      ESOP  Debt--The  estimated  fair value is  determined by  discounting  the
contractual cash flows,  using rates currently  available to the Corporation for
debt with similar terms and remaining maturities.

      Standby Letters of Credit--The fair value is equal to the premium received
at inception of the guarantee.

      Many of the fair  value  estimates  presented  are  based  upon the use of
assumptions  that  are  inherently  subjective  in  nature.   Changes  in  these
assumptions can significantly affect the estimates.  In addition, the fair value
estimates do not  consider the  potential  income taxes or other  expenses  that
would be incurred in the actual sale of an asset or  settlement  of a liability.
Management does not believe that the aggregate fair value information represents
the true underlying value of the Corporation.


                              Omega Financial Corporation 2004 Annual Report  49
<PAGE>

                              Financial Instruments
                                 (In thousands)

<TABLE>
<CAPTION>
                                               December 31, 2004            December 31, 2003
                                           -------------------------------------------------------
                                              Book         Estimated       Book         Estimated
                                              Value       Fair Value       Value       Fair Value
                                           -------------------------------------------------------
<S>                                        <C>            <C>           <C>            <C>
Loans (net of unearned interest):
  Commercial, financial and agricultural   $   271,650    $   269,693   $   111,471    $   113,299
  Real estate--commercial ..............       501,394        494,151       338,703        341,893
  Real estate--construction ............        25,301         25,319        17,598         17,698
  Real estate--mortgage ................       277,208        283,094       197,656        197,791
  Home equity ..........................       133,077        138,262        90,612         94,261
  Personal .............................       107,859        107,765        32,059         32,170
  Lease financing ......................        11,761         12,434            45             45
  Allowance for loan losses ............       (15,644)            --       (10,569)            --
                                           -------------------------------------------------------
Total loans ............................   $ 1,312,606    $ 1,330,718   $   777,575    $   797,157
                                           =======================================================
Fixed rate time deposits ...............   $   562,687    $   561,426   $   316,997    $   322,162
ESOP debt ..............................         2,192          2,327         2,521          2,504
Junior subordinated debentures .........        57,190         57,555            --             --
Long-term debt .........................        99,597         94,907        21,600         23,960
Standby letters of credit ..............            --            138            --             72
Outstanding loan commitments ...........            --             --            --             --
Unused lines of credit .................            --             --            --             --
</TABLE>

21. FINANCIAL INSTRUMENTS WITH OFF-BALANCE
    SHEET RISK AND CONCENTRATIONS OF CREDIT RISK

      The Corporation is a party to financial instruments with off-balance sheet
risk in the  normal  course  of  business  to meet  the  financing  needs of its
customers  and to reduce its own  exposure to  fluctuations  in interest  rates.
These financial instruments may include commitments to extend credit,  financial
guarantees,   financial   options  and  interest  exchange   agreements.   These
instruments  involve,  to varying degrees,  elements of credit and interest rate
risk that are not recognized in the consolidated financial statements.

      Exposure to credit loss in the event of non-performance by the other party
to the  financial  instrument  for  commitments  to extend  credit and financial
guarantees  written is represented by the  contractual  notional amount of those
instruments.  The  Corporation  uses the same credit  policies  in making  these
commitments  as it  does  for  on-balance  sheet  instruments.  The  Corporation
controls  the  credit  risk  of its  financial  options  and  interest  exchange
agreements through credit approvals, limits and monitoring procedures;  however,
it does not generally  require  collateral for such financial  instruments since
there is no principal credit risk.

      The Corporation had outstanding loan origination  commitments  aggregating
$82,829,000  and  $51,218,000  at December 31, 2004 and 2003,  respectively.  In
addition,  the  Corporation had  $205,524,000  and  $120,034,000  outstanding in
unused  lines of credit  commitments  extended to its  customers at December 31,
2004 and 2003, respectively.

      Commitments  to extend credit are agreements to lend to a customer as long
as  there  is no  violation  of  any  condition  established  in  the  contract.
Commitments  generally have fixed expiration dates or other termination  clauses
and may require payment of a fee. Since portions of the commitments are expected
to expire  without  being  drawn  upon,  the  total  commitment  amounts  do not
necessarily  represent future cash requirements.  The Corporation evaluates each
customer's  creditworthiness  on a case-by-case  basis. The amount of collateral
obtained by the  Corporation  upon extension of credit is based on  management's
credit evaluation of the counter party.

      Standby letters of credit are instruments  issued by the Corporation  that
guarantee  the  beneficiary  payment  by the bank in the event of default by the
Corporation's  customer in the non-performance of an obligation or service. Most
standby  letters of credit are  extended for one year  periods.  The credit risk
involved in issuing  letters of credit is essentially  the same as that involved
in extending loan  facilities to customers.  The  Corporation  holds  collateral
supporting  those  commitments  for which  collateral  is deemed  necessary.  At
December 31, 2004 and 2003,  standby  letters of credit  issued and  outstanding
amounted to $24,064,000 and $13,118,000, respectively. The liability recorded in
accordance with FIN45  representing  fair market value of the standby letters of
credit at December  31, 2004 and  December  31, 2003 was  $138,000  and $72,000,
respectively.

      For a brief time in October of 2004,  there were interest rate  agreements
in place.  These agreements were acquired with the purchase of Sun Bancorp,  and
had a fair market value of  $5,053,000  at the time of purchase.  Omega opted to
terminate the  arrangement  immediately  after the Sun  acquisition.  Otherwise,
during  2003  and  2004,  there  were no  financial  options  or  interest  rate
agreements in place.

      As of December 31,  2004,  there were no  concentrations  of credit to any
particular  industry  equaling 10% or more of total outstanding  loans.  Omega's
business   activities  are   geographically   concentrated   throughout  central
Pennsylvania.  Omega has a diversified  loan portfolio;  however,  a substantial
portion of its debtors' ability to honor their obligations is dependent upon the
economy in central Pennsylvania.


50
<PAGE>

22. RELATED-PARTY TRANSACTIONS

      Omega's  banks have granted  loans to certain  officers  and  directors of
Omega and its  subsidiaries  and to their  associates.  These loans were made on
substantially the same terms, including interest rates and collateral,  as those
prevailing at the time for comparable  transactions with unrelated persons,  and
in  the  opinion  of  management,  do not  involve  more  than  normal  risk  of
collection.  The  aggregate  dollar  amount  of  these  loans  was  $19,220,000,
$19,446,000 and  $27,816,000 at December 31, 2004, 2003 and 2002,  respectively.
During  2004,   $2,167,000  of  new  loans  were  made  and  repayments  totaled
$5,430,000.  Existing  borrowings for new directors added as a result of the Sun
Bancorp  acquisition  was  $3,037,000.  None of these  loans  were past due,  in
non-accrual status or restructured at December 31, 2004.

23. COMMITMENTS AND CONTINGENT LIABILITIES

      In 2003,  the  Corporation  renewed a five-year  agreement  to obtain data
processing  services from an outside service bureau.  The agreement provides for
termination  penalties  if the  Corporation  cancels  it prior to the end of the
commitment  period.  If the  contract  would have been  canceled on December 31,
2004,  termination  penalties  of  approximately   $9,792,000  would  have  been
assessed.

      The  Corporation,  from  time  to  time,  may  be  a  defendant  in  legal
proceedings relating to the conduct of its banking business.  Most of such legal
proceedings  are a normal  part of the  banking  business,  and in  management's
opinion,  the financial  condition and results of operations of the  Corporation
would not be materially affected by the outcome of such legal proceedings.

24. REGULATORY MATTERS

      The  Corporation  and its bank  subsidiaries  are  subject  to  risk-based
capital standards by which all bank holding companies and banks are evaluated in
terms  of  capital   adequacy.   These  regulatory   capital   requirements  are
administered  by the federal banking  agencies.  Failure to meet minimum capital
requirements   can  initiate   certain   mandatory   and   possibly   additional
discretionary  actions by regulators  that, if  undertaken,  could have a direct
material  effect  on  the  Corporation's  financial  statements.  Under  capital
adequacy  guidelines and the regulatory  framework for prompt corrective action,
the Corporation and its bank  subsidiary must meet specific  capital  guidelines
that involve  quantitative  measures of the  Corporation's and bank subsidiary's
assets,  liabilities  and certain  off-balance  sheet items as calculated  under
regulatory accounting practices. The Corporation's and bank subsidiary's capital
amounts and  classification  are also  subject to  qualitative  judgments by the
regulators about components, risk weightings and other factors.

      Quantitative measures established by regulation to ensure capital adequacy
require the Corporation and the bank subsidiary to each maintain minimum amounts
and  ratios  (set  forth in the table  below)  of Total  and Tier I capital  (as
defined in the  regulations) to  risk-weighted  assets (as defined),  and Tier I
capital (as defined) to average assets (as defined).  Management believes, as of
December 31, 2004 and 2003,  that Omega and its bank subsidiary meet all capital
adequacy requirements to which they were subject.

      As of December 31, 2004, the most recent  notification from the regulatory
banking agencies  categorized  Omega and its bank subsidiary as well capitalized
under the regulatory  framework for prompt corrective  action. To be categorized
as well  capitalized  Omega and its bank subsidiary must maintain  minimum Total
risk-based,  Tier I  risk-based  and Tier I leverage  ratios as set forth in the
table.  To the knowledge of management,  there are no conditions or events since
these notifications that have changed the institutions' category.

      The table below  provides a comparison of Omega and its bank  subsidiary's
risk-based  capital  ratios  and  leverage  ratios  to  the  minimum  regulatory
requirements for the periods indicated (in thousands):

<TABLE>
<CAPTION>
                                                                  Minimum Requirement    Minimum Regulatory
                                                                      For Capital        Requirements to be
                                                  Actual           Adequacy Purposes     "Well Capitalized"
                                             -----------------    -------------------    ------------------
                                              Amount     Ratio     Amount      Ratio       Amount     Ratio
                                             --------------------------------------------------------------
<S>                                          <C>          <C>     <C>             <C>    <C>           <C>
OMEGA FINANCIAL CORPORATION
As of December 31, 2004:
  Total Capital (to Risk Weighted Assets)    $ 198,830    14.4%   $ 110,562       8.0%   $ 138,202     10.0%
  Tier I Capital (to Risk Weighted Assets)     183,186    13.3%      55,281       4.0%      82,921      6.0%
  Tier I Capital (to Average Assets) .....     183,186    15.3%      47,816       4.0%      59,770      5.0%
As of December 31, 2003:
  Total Capital (to Risk Weighted Assets)    $ 172,212    22.3%   $  61,907       8.0%   $  77,384     10.0%
  Tier I Capital (to Risk Weighted Assets)     162,776    21.0%      30,954       4.0%      46,431      6.0%
  Tier I Capital (to Average Assets) .....     162,776    14.2%      45,816       4.0%      57,271      5.0%

OMEGA BANK
As of December 31, 2004:
  Total Capital (to Risk Weighted Assets)    $ 212,956    15.6%   $ 109,132       8.0%   $ 136,415     10.0%
  Tier I Capital (to Risk Weighted Assets)     197,312    14.5%      54,566       4.0%      81,849      6.0%
  Tier I Capital (to Average Assets) .....     197,312    16.9%      46,756       4.0%      58,445      5.0%
As of December 31, 2003:
  Total Capital (to Risk Weighted Assets)    $ 153,735    20.4%   $  60,299       8.0%   $  75,374     10.0%
  Tier I Capital (to Risk Weighted Assets)     144,299    19.1%      30,149       4.0%      45,224      6.0%
  Tier I Capital (to Average Assets) .....     144,299    12.8%      45,040       4.0%      56,300      5.0%
</TABLE>


                              Omega Financial Corporation 2004 Annual Report  51
<PAGE>

      Certain restrictions exist regarding the ability of Omega Bank to transfer
funds to Omega in the form of cash dividends,  loans and advances. Omega Bank is
required  to obtain the  approval  of the  Comptroller  of the  Currency  to pay
dividends in excess of earnings  retained in the current year plus  retained net
profits for the preceding two years.

      Under Federal Reserve restrictions, Omega Bank is limited in the amount it
may loan to its affiliates,  including  Omega. At December 31, 2004,  Omega Bank
had an aggregate  lending limit to affiliates of  $31,927,000  and no amount was
outstanding with Omega.

25. SUBSEQUENT EVENTS

      In  February  2005,   management  completed  its  planned   restructuring.
Long-term  Federal  Home  Loan  Bank debt of  $55,032,000  was paid off,  with a
realized gain on the early  extinguishment of debt of $1,043,000.  Additionally,
investment  securities  in the amount of  $35,492,000  were sold,  and a gain of
$257,000 was realized.

26. OMEGA FINANCIAL CORPORATION (PARENT COMPANY ONLY)
    Financial information (in thousands):

                            Condensed Balance Sheets
                                   (Unaudited)

                                                         December 31,
                                                   ------------------------
                                                      2004          2003
                                                   ------------------------
ASSETS:
  Cash ........................................    $    6,247    $    6,453
  Investment in bank subsidiaries .............       353,108       125,819
  Investment in non-bank subsidiaries .........        37,280        33,894
  Investment in unconsolidated subsidiaries ...         1,625            --
  Investment securities available for sale ....           500            --
  Premises and equipment, net .................         4,483         4,678
  Other assets ................................             7           578
                                                   ------------------------
TOTAL ASSETS ..................................    $  403,250    $  171,422
                                                   ========================
LIABILITIES:
  Demand loan .................................    $   10,000    $       --
  Long-term debt ..............................        12,000            --
  Junior subordinated debentures ..............        57,190            --
  ESOP debt ...................................         2,192         2,521
  Accounts payable and other liabilities ......         6,129         1,462
                                                   ------------------------
TOTAL LIABILITIES .............................        87,511         3,983
SHAREHOLDERS' EQUITY ..........................       315,739       167,439
                                                   ------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ....    $  403,250    $  171,422
                                                   ========================

                         Condensed Statements of Income
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                Years Ended December 31,
                                                         --------------------------------------
                                                            2004          2003          2002
                                                         --------------------------------------
<S>                                                      <C>           <C>           <C>
INCOME:
  Dividends from:
    Bank subsidiaries ................................   $   12,420    $   11,493    $   32,148
    Non-bank subsidiaries ............................          313         2,250            --
    Unconsolidated subsidiaries ......................           48            --            --
  Securities available for sale ......................            7            --            --
  Fees received from subsidiaries ....................          577           468           668
  Other fee income ...................................            8            --            --
                                                         --------------------------------------
TOTAL INCOME .........................................       13,373        14,211        32,816
EXPENSE:
  Interest expense ...................................        1,119             3             6
  Amortization .......................................         (203)           --            --
  Salaries and employee benefits .....................          596           619            --
  Other ..............................................          706           571           753
                                                         --------------------------------------
TOTAL EXPENSE ........................................        2,218         1,193           759
                                                         --------------------------------------
INCOME BEFORE INCOME TAXES AND EQUITY
  IN UNDISTRIBUTED NET INCOME OF SUBSIDIARIES ........       11,155        13,018        32,057
Income tax benefit ...................................         (865)         (536)         (112)
                                                         --------------------------------------
                                                             12,020        13,554        32,169
Equity in undistributed net income of subsidiaries ...        5,001         3,631       (13,990)
                                                         --------------------------------------
NET INCOME ...........................................   $   17,021    $   17,185    $   18,179
                                                         ======================================
</TABLE>


52
<PAGE>

                       Condensed Statements of Cash Flows
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                                             Years Ended December 31,
                                                                                      --------------------------------------
                                                                                         2004          2003          2002
                                                                                      --------------------------------------
<S>                                                                                   <C>           <C>           <C>
Cash flows from operating activities:
  Net income ......................................................................   $   17,021    $   17,185    $   18,179
  Adjustments to reconcile net income to net cash provided by operating activities:
    Depreciation and amortization .................................................          119           369           624
    Decrease (increase) in tax receivable .........................................         (288)          208           (65)
    Decrease (increase) in interest and other receivable ..........................          310           274         1,134
    Increase (decrease) in taxes payable ..........................................           --            39            (4)
    Increase (decrease) in accounts payable and accrued expenses ..................      (11,881)          567        (1,024)
    (Increase) decrease in undistributed earnings of subsidiaries .................       (5,001)       (3,642)       13,990
                                                                                      --------------------------------------
      Total adjustments ...........................................................      (16,741)       (2,185)       14,655
                                                                                      --------------------------------------
Net cash provided by operating activities .........................................          280        15,000        32,834
Cash flows from investing activities:
  Capital expenditures ............................................................         (128)         (109)           (4)
  Sale of fixed assets ............................................................           --            --         1,231
Net cash paid for acquisition of Sun Bancorp, Inc. ................................      (43,023)
Investment in unconsolidated subsidiary ...........................................       (1,114)           --            --
                                                                                      --------------------------------------
Net cash provided by (used in) investing activities ...............................      (44,265)         (109)        1,227
Cash flows from financing activities:
  Issuance of demand note payable .................................................       10,000            --            --
  Issuance of junior subordinated debt ............................................       37,114            --            --
  Issuance of long-term debt ......................................................       12,000            --            --
  Principal payments made on debt .................................................       (1,657)           --            --
  Dividends paid ..................................................................      (11,388)      (12,230)       (9,491)
  Net change in interest bearing liabilities ......................................           38            31            34
  Capital contribution to subsidiary ..............................................       (2,453)           --       (20,000)
  Tax benefit from preferred stock dividend and stock option activity .............          186           303           491
  Issuance of common stock ........................................................        2,427         2,389         3,470
  Acquisition of treasury stock ...................................................       (2,488)       (2,886)       (9,207)
                                                                                      --------------------------------------
Net cash used in financing activities .............................................       43,779       (12,393)      (34,703)
                                                                                      --------------------------------------
Net increase (decrease) in cash and due from banks ................................   $     (206)   $    2,498    $     (642)
                                                                                      ======================================
Cash and due from banks at beginning of period ....................................   $    6,453    $    3,955    $    4,597
Cash and due from banks at end of period ..........................................        6,247         6,453         3,955
                                                                                      --------------------------------------
Net increase (decrease) in cash and due from banks ................................   $     (206)   $    2,498    $     (642)
                                                                                      ======================================
Income taxes paid .................................................................   $    3,620    $    5,625    $    4,790
Interest paid .....................................................................          248             3             6
</TABLE>


                              Omega Financial Corporation 2004 Annual Report  53
<PAGE>

27. QUARTERLY RESULTS OF OPERATIONS (Unaudited)

      The unaudited quarterly results of operations for the years ended December
31, 2004 and 2003 follow (in thousands, except per share data):

<TABLE>
<CAPTION>
                                                       2004 Quarter Ended
                                      -----------------------------------------------------
                                       March 31      June 30     September 30   December 31
                                      -----------------------------------------------------
<S>                                   <C>           <C>            <C>            <C>
Total interest income .............   $  13,106     $  12,845      $  12,919      $  23,501
Total interest expense ............       3,016         2,959          3,146          7,545
Net interest income ...............      10,090         9,886          9,773         15,956
Provision for loan losses .........          --            --             --           (300)
Securities gains ..................           8           203             60            692
Income before income taxes ........       4,595         5,126          4,646          7,976
Income tax expense ................         991         1,195          1,094          2,042
Net income ........................       3,604         3,931          3,552          5,934
Basic earnings per share ..........   $     .43     $     .46      $     .42      $     .47
Diluted earnings per share ........         .42           .46            .42            .47

                                                       2003 Quarter Ended
                                      -----------------------------------------------------
                                       March 31      June 30     September 30   December 31
                                      -----------------------------------------------------
Total interest income .............   $  14,743     $  14,457      $  14,027      $  13,556
Total interest expense ............       3,743         3,588          3,238          3,137
Net interest income ...............      11,000        10,869         10,789         10,419
Provision for loan losses .........         100           150            100              0
Securities gains ..................          31           699            257            140
Income before income taxes ........       5,420         5,672          5,749          5,170
Income tax expense ................       1,198         1,440          1,409            779
Net income ........................       4,222         4,232          4,340          4,391
Basic earnings per share ..........   $     .51     $     .51      $     .52      $     .52
Diluted earnings per share ........         .49           .49            .51            .51
</TABLE>

      On October 1, 2004,  Omega  consummated its merger with Sun Bancorp,  Inc.
This  transaction  accounts for the increase in net income for the quarter ended
December 31, 2004 when compared to the previous quarters' net income.

      During  the  fourth  quarter,  management  executed  most  of its  planned
post-merger  restructuring  efforts  that  included the sale of Sun's auto lease
portfolio and investment  securities and the early  extinguishment  of long-term
Federal  Home  Loan  Bank  Debt and a  related  interest  rate  swap  and  other
subordinated debt. This restructuring resulted in a reduction of total assets by
$194,265,000.  Due to the  favorable  movement in  interest  rates from the date
acquired to the date disposed,  Omega  recognized a $652,000 gain on the sale of
the  securities  and a $570,000 gain on the disposal of debt and  liquidation of
the  related  interest  rate  swap.  The sale of the auto  lease  portfolio  was
consummated   at  essentially   the  fair  value  of  the  acquired   portfolio.
Amortization  of purchase  accounting  adjustments in the fourth quarter of 2004
increased pre-tax income by $246,000.


54
<PAGE>

                  Omega Financial Corporation and Subsidiaries
                    COMMON STOCK MARKET PRICES AND DIVIDENDS

      The common stock of Omega Financial Corporation is traded on the Nasdaq(R)
National  Market under the symbol OMEF.  As of December 31, 2004,  the number of
shareholders of record of the Corporation's common stock was 4,055.

      The following table sets forth, for the periods indicated the high and low
sale prices and dividends declared:

                                              2004
                                    ---------------------------
                                                      Dividends
Quarter Ended                        High      Low    Declared
---------------------------------------------------------------
March 31 ......................     $38.75   $33.71      $ 0.30
June 30 .......................      37.97    29.10        0.30
September 30 ..................      35.31    29.13        0.30
December 31 ...................      36.75    32.74        0.30

                                              2003
                                    ---------------------------
                                                      Dividends
Quarter Ended                        High      Low    Declared
---------------------------------------------------------------
March 31 ......................     $36.65   $31.25      $ 0.29
June 30 .......................      37.74    32.80        0.29
September 30 ..................      37.37    32.92        0.29
December 31 ...................      38.99    33.24        0.30

      While the Corporation  expects to continue its policy of regular quarterly
dividend payments, no assurance of future dividend payments can be given. Future
dividend payments will depend upon maintenance of a strong financial  condition,
future  earnings  and capital and  regulatory  requirements.  See Note 24 of the
Notes to Consolidated Financial Statements.

Corporate Headquarters
    Omega Financial Corporation
    366 Walker Drive
    State College, PA 16801
    800-494-1810
    814-231-7680
    OmegaFinancial.com

Investor Information
    JoAnn McMinn, Senior Vice President
    Director of Investor Relations
    366 Walker Drive
    State College, PA 16801
    800-494-1810
    814-231-7680
    JMcMinn@omef.com

                             CORPORATE INFORMATION

INVESTMENT CONSIDERATIONS

      In analyzing  whether to make,  or to  continue,  an  investment  in Omega
Financial  Corporation,  investors  should  consider,  among other factors,  the
information   contained   in  this   Annual   Report  and   certain   investment
considerations  and other  information  more fully  described in Omega's  Annual
Report on Form 10-K for the year ended December 31, 2004, a copy of which can be
obtained as described above.

REGISTRAR AND TRANSFER AGENT
Registrar and Transfer Company
10 Commerce Drive
Cranford, New Jersey 07016-3572
Telephone: (800-368-5948)
Website: www.rtco.com
E-mail: info@rtco.com

      Stockholders  of record may access  their  accounts  via the  Internet  to
review account holdings and transaction  history through  Registrar and Transfer
Company's website: www.RTCO.com

INFORMATION AVAILABILITY

      Information  about the  Company's  financial  performance  may be found at
www.omegafinancial.com. Earnings releases, dividend announcements and other news
releases  are  typically  available at this site within ten minutes of issuance.
Shareholders  wishing to receive e-mail notification each time a news release or
corporate  event has been posted may  arrange to do so by visiting  the web site
and following the instructions listed under "E-mail Notification."

      All reports filed  electronically by Omega Financial  Corporation with the
United States  Securities and Exchange  Commission  (SEC),  including the Annual
Report on Form 10-K,  quarterly  reports on Form 10-Q, and current event reports
on Form 8-K, as well as any amendments to those reports,  are also accessible at
no cost on the SEC's Web site at www.sec.gov.

      Additionally, a copy of the Corporation's Annual Report to the SEC on Form
10-K for the year  ended  December  31,  2004 will be  supplied  without  charge
(except for exhibits) upon written  request.  Please direct all inquiries to Mr.
David N. Thiel, Secretary, 366 Walker Drive, State College, PA 16801.

ANNUAL MEETING OF SHAREHOLDERS

      The Annual Meeting of Shareholders of Omega Financial  Corporation will be
held at 10:00 a.m.,  Monday,  April 25, 2005 at Ramada Inn, 1450 South  Atherton
Street, State College, Pennsylvania.


                              Omega Financial Corporation 2004 Annual Report  55
<PAGE>

                          OMEGA FINANCIAL CORPORATION
                               Board of Directors

David B. Lee, Chairman
Chairman and Chief Executive Officer

Raymond F. Agostinelli
President and owner McLanahan Drug
Store Management Co., Inc.

Maureen M. Bufalino
Senior Vice President and Regional
President, Omega Bank

Philip E. Gingerich
Self employed Real Estate Appraiser
and Consultant, Retired

Robert A. Hormell
Assistant Director of Susquehanna
Economic Development Association--
Council of Governments (SEDA-COG)

D. Stephen Martz
Retired Officer,
Omega Financial Corporation

Robert N. Oliver
Owner, Oliver Farms

James W. Powers, Sr.
Retired President, Polestar Plastics
Manufacturing Company

Stanton R. Sheetz
President and C.E.O., Sheetz, Inc.
Retail Convenience Stores

Robert A. Szeyller
Retired Managing Partner,
Pennsylvania Financial Group, Inc.
Pension and Insurance Consulting Firm

Dennis Van Benthuysen
President and Owner of The Colonial
Furniture Company

                                    Officers

David B. Lee
Chairman and Chief Executive Officer

Donita R. Koval
President and Chief Operating Officer

Daniel L. Warfel, CPA
Executive Vice President and
Chief Financial Officer

Charles E. Nelson
Executive Vice President

Vincent C. Turiano
Executive Vice President
Insurance and Investments

Maureen M. Bufalino
Senior Vice President

Teresa M. Ciambotti, CFA
Senior Vice President,
Funds Management

JoAnn N. McMinn
Senior Vice President, Corporate
Controller and Director of
Investor Relations

Byron Mertz, III
Senior Vice President

David N. Thiel
Senior Vice President,
Operations and Secretary

                                   OMEGA BANK
                               Board of Directors

David B. Lee, Chairman
Raymond F. Agostinelli
Edward J. Anderson
Ralph W. Arthur, Jr.
Carl H. Baxter

Maureen M. Bufalino
Richard L. Campbell, Esq.
Allen E. Gibboney, Esq.
Philip E. Gingerich
Robert A. Hormell

Frederick J. Kissinger
Donita R. Koval
Stephen M. Krentzman
D. Stephen Martz
Robert N. Oliver

James W. Powers, Sr.
Stanton R. Sheetz
Robert A. Szeyller
Dennis Van Benthuysen

                                    Officers

David B. Lee, Chairman

Donita R. Koval, President and Chief Executive Officer

                              Regional Presidents

Maureen M. Bufalino
Wilkes-Barre Region

Byron Mertz, III
Susquehanna Valley Region

                           Executive Vice Presidents

Daniel L. Warfel, CPA
Chief Financial Officer

John R. Franks, Jr.
Retail Sales

Vincent C. Turiano
Information Technology

                             Senior Vice Presidents

Thomas Bixler
Head of Commercial Lending

Teresa M. Ciambotti, CFA
Funds Management

Gary P. Cook
Bank Capital Services

Bruce R. Erb, CFP, CTFA
Asset Management and Trust

John E. Gravish
Consumer Lending Manager

Stephen W. Grim
Commercial Loan Division Manager

Dennis E. Hampton
Asset Management and Trust

Ronald S. Haring
Senior Commercial Lender

JoAnn N. McMinn
Corporate Controller

Larry D. Muck
Mortgage Lending Manager

David N. Thiel
Cashier and Secretary

                      MID-PENN INSURANCE ASSOCIATES, INC.
                           Daniel R. Geise, President
             Cheryl A. Zellers, Vice President, Secretary, Treasurer
                      Christopher J. Fellon, Vice President

                 SENTRY TRUST COMPANY, SUBSIDIARY OF OMEGA BANK
            Charles E. Nelson, President and Chief Executive Officer
  Carole L. Crist, Executive Vice President and Chief Operating Officer/Chief
                               Investment Officer
   Randy L. Martin, Senior Vice President and Employee Benefits Trust Officer

                BANK CAPITAL SERVICES, SUBSIDIARY OF OMEGA BANK
                            Gary P. Cook, President


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