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OMEGA FINANCIAL CORPORATION
    2005 Annual Report


<PAGE>

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, 2005 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>
                                                        2005           2004            2003           2002           2001
                                                     ------------------------------------------------------------------------
                                                            (In thousands of dollars, except share and per share data)
BALANCE SHEET INFORMATION at December 31
<S>                                                  <C>            <C>             <C>            <C>            <C>
  Assets .........................................   $ 1,939,979    $ 2,082,571     $ 1,140,166    $ 1,154,557    $ 1,158,629
  Deposits .......................................     1,422,530      1,502,082         907,580        919,255        931,667
  Loans, net .....................................     1,199,373      1,312,606         788,144        779,819        760,354
  Investment securities ..........................       353,355        327,979         240,539        251,508        266,658
  Short-term borrowings ..........................        90,153         90,259          33,263         41,452         37,572
  Junior subordinated debentures .................        56,692         57,190              --             --             --
  Long-term debt (including ESOP debt) ...........        38,167        101,771          24,121         19,069         20,344
  Shareholders' equity ...........................       318,490        315,739         167,439        162,110        156,250
  Number of shares outstanding--common ...........    12,599,508     12,593,524       8,458,823      8,099,778      8,222,010
  Number of shares outstanding--preferred ........            --             --              --        219,781        219,781

INCOME STATEMENT INFORMATION
Years Ended December 31
  Total interest income ..........................   $    91,175    $    62,371     $    56,783    $    64,960    $    76,006
  Net interest income ............................        61,670         45,705          43,077         45,637         45,143
  Provision (credit) for loan losses .............         1,202           (300)            350            630            500
  Income before income taxes .....................        29,057         22,343          22,011         23,829         23,532
  Income tax expense .............................         6,182          5,322           4,826          5,650          5,877
  Net income .....................................        22,875         17,021          17,185         18,179         17,655

PER COMMON SHARE DATA
  Net income--basic ..............................   $      1.82    $      1.79     $      2.07    $      2.17    $      2.08
  Net income--diluted ............................          1.81           1.78            2.01           2.10           2.01
  Cash dividends--common .........................          1.24           1.20            1.17           1.13           1.07
  Book value--common .............................         25.28          25.07           19.79          19.63          18.65
  Book value--tangible ...........................         11.76          11.28           19.79          19.63          18.65

FINANCIAL RATIOS
  Return on average tangible equity ..............         15.33%         11.84%          10.32%         11.32%         11.50%
  Return on average common equity ................          7.13           8.89           10.32          11.32          11.50
  Return on average tangible assets ..............          1.25           1.26            1.50           1.58           1.56
  Return on average assets .......................          1.15           1.24            1.50           1.58           1.56
  Dividend payout--common ........................         68.30          66.91           55.76          50.76          50.01
  Average equity to average assets ...............         16.06          13.97           14.53          13.96          13.54
</TABLE>


                                                                               1
                                  Omega Financial Corporation 2005 Annual Report
<PAGE>

Omega Financial Corporation and Subsidiaries
Management's Discussion and Analysis of Financial Condition and Results of
Operations

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, 2005, 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,  health savings accounts,  insured money market accounts, debit cards,
investment  certificates,  fixed and variable rate certificates of deposit, club
accounts,  secured and unsecured  installment  loans,  construction and mortgage
loans, safe deposit facilities, credit lines with overdraft checking protection,
Home Equity  VISA card,  IRA  accounts  and student  loans.  Commercial  banking
services include  commercial  lending,  small and high-volume  business checking
accounts,  on-line account management services, ACH origination,  payroll direct
deposit,  commercial cash management services 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.

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 achieving  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 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.


2
<PAGE>

      Operating  Results--Omega's  management  keeps  a  sharp  eye on  earnings
results.  Earnings in 2005 were up more than 34% over the prior year,  with many
of our profitability ratios consistently  exceeding those of our peer group. The
acquisition  of Sun during the fourth  quarter of 2004,  and the  balance  sheet
restructuring and integration efforts positively affected the year's results and
is  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.  In 2005,  Omega  opened a new  financial
service  center in the Centre county region as well as a new branch  location in
the Wilkes Barre 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.  In 2005, Omega implemented virtual proof, and
was the first bank in the  Philadelphia  Federal  Reserve  District to implement
imaged delivery of check items to the Federal Reserve.

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. Increased competition and the resulting pricing
pressures have  challenged  Omega's growth  opportunities  in our primary market
areas.

      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,  Sarbanes-Oxley Act of
2002 and the Bank Secrecy Act.  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 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 9-10 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 for
impairment on at least an annual basis.  Management's current analysis indicates
that a 22.9% decline in market  capitalization would warrant further analysis of
the carrying  value of  goodwill,  which could  result in an  adjustment  to its
value.

      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, 2005 could
result in an  impairment  of the core  deposit  intangible  and  affect  Omega's
operating results in future years.


                                                                               3
                                  Omega Financial Corporation 2005 Annual Report
<PAGE>

Table 1--Linked Quarter Analysis
Omega Financial Corporation and Subsidiaries Consolidated Balance Sheets
(In thousands, except share data) Unaudited

<TABLE>
<CAPTION>
                                               October 1,   December 31,   March 31,     June 30,    September 30,  December 31,
                                                  2004          2004          2005         2005          2005           2005
                                               ---------------------------------------------------------------------------------
<S>                                            <C>          <C>            <C>          <C>          <C>            <C>
ASSETS
Cash and due from banks ....................   $   52,332   $     47,877   $   49,424   $   54,152   $     57,945   $     56,194
Interest bearing deposits with other banks .       25,660         31,122       29,899       25,153          6,981          8,908
Federal funds sold .........................       10,100         36,350       17,000       30,325             --             --
Trading securities .........................           --             --           --          469            464            468
Investment securities available for sale ...      470,210        327,979      315,108      322,018        367,330        353,355
Investment in unconsolidated subsidiary ....          511          1,625        1,625        1,625          1,625          1,625
Loans held for sale ........................           --         22,515           69          306            217            264
Net portfolio loans ........................    1,417,048      1,290,091    1,265,296    1,238,242      1,215,471      1,199,109
Goodwill and intangibles ...................      174,036        173,685      171,298      170,941        170,674        170,262
Total other assets .........................      195,110        151,327      154,440      150,514        151,123        149,794
                                               ---------------------------------------------------------------------------------
TOTAL ASSETS ...............................   $2,345,007   $  2,082,571   $2,004,159   $1,993,745   $  1,971,830   $  1,939,979
                                               =================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
  Non-interest bearing .....................   $  232,563   $    228,408   $  220,520   $  235,599   $    237,853   $    236,683
  Interest bearing .........................    1,319,188      1,273,674    1,268,265    1,275,735      1,209,997      1,185,847
                                               ---------------------------------------------------------------------------------
Total deposits .............................    1,551,751      1,502,082    1,488,785    1,511,334      1,447,850      1,422,530
Short-term borrowings ......................       64,622         90,259       78,251       55,664        107,798         90,153
Junior subordinated debentures .............       57,315         57,190       57,066       56,941         56,816         56,692
Long-term debt .............................      292,842         99,579       43,853       32,000         26,614         36,322
Other liabilities ..........................       21,729         17,722       19,771       19,477         14,212         15,792
                                               ---------------------------------------------------------------------------------
TOTAL LIABILITIES ..........................    1,988,259      1,766,832    1,687,726    1,675,416      1,653,290      1,621,489
                                               ---------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY .................      356,748        315,739      316,433      318,329        318,540        318,490
                                               ---------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY .   $2,345,007   $  2,082,571   $2,004,159   $1,993,745   $  1,971,830   $  1,939,979
                                               =================================================================================
</TABLE>

Omega Financial Corporation and Subsidiaries Consolidated Statements of Income
(In thousands, except share data) Unaudited

<TABLE>
<CAPTION>
                                                                         Qtr 4       Qtr 1       Qtr 2       Qtr 3       Qtr 4
                                                                          2004        2005        2005        2005        2005
                                                                        --------------------------------------------------------
<S>                                                                     <C>         <C>         <C>         <C>         <C>
TOTAL INTEREST INCOME ...............................................   $ 23,501    $ 22,072    $ 22,639    $ 23,150    $ 23,314
TOTAL INTEREST EXPENSE ..............................................      7,545       6,830       7,289       7,541       7,845
                                                                        --------------------------------------------------------
NET INTEREST INCOME .................................................     15,956      15,242      15,350      15,609      15,469
Provision (credit) for loan losses ..................................       (300)        142         180         290         590
                                                                        --------------------------------------------------------
INCOME FROM CREDIT ACTIVITIES .......................................     16,256      15,100      15,170      15,319      14,879
Non-Interest Income:
Loan and deposit fees ...............................................      5,021       4,056       4,376       4,575       4,697
Trust and investment sales ..........................................      2,298       2,738       2,255       2,190       1,987
Gain on the early extinguishment of debt ............................        570       1,043          --          --          --
Gain on sale of loans and other assets ..............................       (115)       (339)        (39)         (1)          3
Net gains on the sale of investment securities ......................        692         988         549         134         656
                                                                        --------------------------------------------------------
TOTAL OTHER INCOME ..................................................      8,466       8,486       7,141       6,898       7,343
Non-Interest Expense:
Salaries and employee benefits ......................................      8,193       7,551       7,721       7,720       7,563
Occupancy, equipment and data processing ............................      2,713       2,826       2,716       2,620       2,833
Amortization of intangible assets ...................................        394         163         274         274         274
Other ...............................................................      5,446       4,429       4,952       4,578       4,785
                                                                        --------------------------------------------------------
TOTAL OTHER EXPENSE .................................................     16,746      14,969      15,663      15,192      15,455
                                                                        --------------------------------------------------------
Income before taxes .................................................      7,976       8,617       6,648       7,025       6,767
Income tax expense ..................................................      2,042       2,040       1,267       1,460       1,415
                                                                        --------------------------------------------------------
NET INCOME ..........................................................   $  5,934    $  6,577    $  5,381    $  5,565    $  5,352
                                                                        ========================================================
Net income per common share:
  Basic .............................................................   $   0.47    $   0.52    $   0.43    $   0.44    $   0.43
  Diluted ...........................................................   $   0.47    $   0.52    $   0.43    $   0.44    $   0.42
Weighted average shares and equivalents:
  Basic .............................................................     12,531      12,596      12,607      12,616      12,586
  Diluted ...........................................................     12,627      12,659      12,660      12,666      12,624
Dividends declared per share:
  Common ............................................................   $    .30    $    .31    $    .31    $    .31    $    .31
</TABLE>

                                                                     (continued)


4
<PAGE>

<TABLE>
<CAPTION>
                                                                         Qtr 4       Qtr 1       Qtr 2       Qtr 3       Qtr 4
                                                                          2004        2005        2005        2005        2005
                                                                        --------------------------------------------------------
<S>                                                                      <C>          <C>        <C>         <C>         <C>
Key Ratios
Yield on Earning Assets .............................................    5.30%        5.28%      5.53%       5.68%       5.84%
Rate on Funding Sources .............................................    1.70%        1.64%      1.78%       1.84%       1.96%
Net Interest Spread .................................................    3.60%        3.64%      3.75%       3.84%       3.88%
Net Interest Spread--Tax Equivalent .................................    3.79%        3.81%      3.90%       3.99%       4.03%
Return on Average Equity ............................................    9.29%        8.26%      6.73%       6.90%       6.65%
Return on Average Tangible Equity ...................................    9.29%       18.14%     14.47%      14.68%      14.14%
</TABLE>

Linked Quarter Analysis

      Given  the  impact  of the  Sun  acquisition  on  October  1,  2004 to the
comparability  of the balance sheet and income  statement,  management  analyzes
financial  condition and the results of operations  on a linked  quarter  basis.
Table 1 depicts a summary  balance  sheet,  income  statement and key ratios for
Omega as of  October  1, 2004 and  through  the end of each  quarter  thereafter
ending on December  31, 2005.  The October 1, 2004  opening  position is Omega's
balance  sheet on September  30, 2004 and  includes  the assets and  liabilities
acquired through the Sun merger on October 1, 2004.

The Big Picture since Acquiring Sun

      One of Omega's primary  objectives in 2005 was to  successfully  integrate
the Sun operations and  restructure the balance sheet to reduce exposure to risk
and maximize  returns.  Management made significant  progress during the year to
meet these objectives  through  identifying  credit  facilities that didn't meet
Omega's  underwriting  standards,  examining business lines that did not achieve
the Company's hurdle rate for risk-adjusted returns,  consolidating  operations,
and  re-pricing  products to enhance  returns while  remaining  competitive.  In
addition,  Omega experienced lower than expected demand for residential mortgage
and  commercial  loans as a result  of a slowing  local  economy  and  increased
competition in our markets.

      At October 1, 2004,  Omega's assets totaled  $2,345,007,000.  During 2005,
assets declined by $361,274,000 net of the $43,754,000 cash  consideration  paid
to Sun  shareholders.  This  decline is  primarily  due to the  planned  sale of
investment securities and loans acquired from Sun that did not meet Omega's risk
profile  and due to  decreasing  loan  volumes  as a result  of  tighter  credit
standards and the increased competitive market. At the end of 2005, total assets
were $1,939,979,000.  Most of the proceeds from the asset sales were used to pay
off the Federal Home Loan Bank debt acquired from Sun.  Management's  efforts in
2005 to rebalance the risk profile of the Company drove the net interest  margin
from 3.79% in the fourth quarter of 2004 to 4.03% in the fourth quarter of 2005.

Fourth Quarter 2004

      During the fourth quarter of 2004, Omega began its  restructuring  efforts
by selling  $115,646,000 of long term securities and utilizing this liquidity to
pay off $171,000,000 of long term fixed rate FHLB borrowings.  These investments
and debt were part of Sun's leverage  strategy that didn't meet Omega's interest
rate risk  profile.  The sales of  investment  securities  resulted in a gain of
$652,000  and  the  payoff  of debt  resulted  in a gain  on  extinguishment  of
$570,000. Upon analyzing the acquired Sun loan portfolio,  management decided to
mark  $22,515,000  of  manufactured  housing  mortgages  for  sale  at a loss of
$157,000 and also sold the acquired Sun leasing  portfolio of $83,600,000 at its
net book value. In order to manage Omega's net interest margin, management began
re-pricing certain acquired deposit accounts in the fourth quarter of 2004. This
re-pricing,  along with expected initial runoff after the merger,  resulted in a
$49,669,000  decrease in total deposits  during the fourth  quarter.  During the
quarter,  Omega paid $43,754,000 to Sun's shareholders as the cash consideration
in the acquisition which decreased  shareholder's equity to $315,739,000.  These
restructuring  activities  shrank the  balance  sheet by  $262,000,000,  reduced
credit risk and positioned Omega for improving margins.  Management's efforts to
consolidate   and   integrate   Sun's   operations   produced  cost  savings  of
approximately  $1,800,000 in the fourth  quarter of 2004,  which were  partially
offset by merger related expenses.

First Quarter 2005

      The restructuring of the balance sheet continued in the first quarter with
the sale of  $47,286,000 of securities,  generating  gains of $400,000,  and the
payoff  of  $55,032,000  of  FHLB  debt,   which  drove  a  $1,043,000  gain  on
extinguishment.  Management  closed the sale of the  $22,515,000 of manufactured
housing mortgages at a loss of $381,000.  Management  finalized its valuation of
the core deposit  intangible  acquired from Sun and the  adjustment  resulted in
lower  amortization  of $230,000 in the first quarter of 2005,  when compared to
the fourth  quarter of 2004.  Management  continued to manage the credit risk of
the  acquired  assets and  adjusted  the  pricing on  indirect  auto loans which
accelerated  the  run  off of  this  product  from  $75,700,000  at the  time of
acquisition to $59,587,000 at the end of the first quarter. Omega also continued
to experience run off in residential mortgage loans as the market slowed.

      Management's  fourth  quarter  efforts  and the  rising  rate  environment
favorably  impacted the net interest margin with an increase of two basis points
in the first quarter to 3.81%.  Loan and deposit fees decreased when compared to
the fourth quarter by  approximately  $965,000 due primarily to reduced mortgage
refinancing  activity and deposit runoff as a result of rate  standardization on
the  acquired  Sun  deposits.   Non-interest   expenses  for  the  quarter  were
$14,969,000,  down $1,777,000,  or 10.6% when compared to the previous  quarter,
driven by lower  salaries  and  benefits  and cost  efficiencies  realized  from
management integration efforts. Net income increased 10.8% to $6,577,000.


                                                                               5
                                  Omega Financial Corporation 2005 Annual Report
<PAGE>

Second Quarter 2005

      Loans  continued to contract in the second  quarter as  commercial  loans,
residential mortgages and indirect auto loans declined causing loans in total to
drop by  $27,054,000.  Deposits  showed nice growth as they ended the quarter at
$1,511,334,000  for  an  increase  of  $22,549,000.  Total  assets  declined  by
$10,414,000  for the quarter to end at  $1,993,745,000.  Omega did  complete the
sale of Sun's  administration  center in June.  The building and equipment had a
net book  value  of  $1,633,000  and  after a  favorable  tax  treatment,  Omega
experienced a slight gain from the transaction.

      The margin  continued to improve as it reached 3.90% for the quarter for a
nine basis point  improvement over the previous  quarter.  Loan and deposit fees
increased  primarily  as a result of customer  overdraft  fees,  while trust and
investment  fees  declined as the result of the loss of two key  producers.  The
reduction of the one-time  items such as security  gains,  loss on sale of loans
and other assets and the gain from the early  extinguishment  of debt  accounted
for  $1,182,000  of  the  decrease  in  non-interest  income.  The  increase  in
non-interest  expense  was due to  increased  marketing  costs,  audit costs and
outside service costs.  These changes  resulted in a decrease,  when compared to
the second quarter, of $1,196,000, resulting in $5,381,000 of net income for the
quarter.

Third Quarter 2005

      On a linked  quarter  basis,  deposits  declined  $63,484,000,  or 4.2% as
balances held by  governmental  entities left Omega as a result of interest rate
changes. These funds required  collateralization with securities and were priced
at yields higher than could be earned on the securities  that had to be pledged,
causing a drag on Omega's net interest  income.  Management made the decision to
eliminate  this  drag.   Commercial  and  residential   mortgages   declined  by
approximately $23,000,000 during the quarter.

      Net interest  income  increased  for the quarter and the margin  increased
nine basis points to 3.99%. This margin improvement was a result of Omega's rate
risk position and the  restructuring  of the balance sheet. The flat yield curve
during the year held down the margin from widening further. During this quarter,
management  identified  a  credit  facility  that  was  experiencing  cash  flow
difficulties  resulting  in an  increase  in the  provision  for loan  losses to
$290,000   representing   a  $110,000   increase  over  the  previous   quarter.
Non-interest  income  decreased  $243,000 as a result of deposit fees increasing
while trust and  investment  sales fees declined and gains from  security  sales
were reduced by $415,000.  Non-interest expenses decreased by $471,000 primarily
as a result of  decreases in equipment  and other tax costs.  The quarter  ended
with  $5,565,000 of net income  representing  an increase of 3.4% as compared to
the previous quarter.

Fourth Quarter 2005

      The fourth  quarter  experienced a  $25,320,000  decline in deposits and a
$16,362,000  decline in loans.  The decline in deposits  was due to  competitive
pressures as management  chose not to compete  aggressively for deposits because
loans weren't growing. Residential mortgages, commercial loans and indirect auto
loans  continued to contract while slightly offset by an increase in home equity
loans.

      Operating  performance also declined as net income decreased $213,000,  or
3.8%. Net interest  income dropped  $140,000.  This decrease was due to the lost
volumes as the margin grew from 3.99% to 4.03% on a fully tax equivalent  basis.
The  provision  for loan losses was  increased by $300,000 due to the  weakening
credit facility that was previously  mentioned.  Non-interest  income  increased
$445,000  due to loan and  deposit  fees  increases  and  increased  gains  from
security sales.  These increases were partially offset by a decline in trust and
investment sales fees.  Non-interest  expenses went up $263,000 primarily due to
equipment costs and other tax increases.

Future

      Omega's   strategic  plan  calls  for  the   consolidation   and  possible
elimination of branches that are  unprofitable.  Management is in the process of
studying the branches  and expects that a few will be  consolidated  into larger
locations. Also being studied are the fringe markets that Sun was in and whether
it is in Omega's  best  interest to stay in these  markets.  These  actions,  if
initiated,  would  probably have the effect of shrinking  Omega's  balance sheet
further.  Outside  of  these  actions,  Management  believes  that  Omega is now
positioned to grow its core banking business within its market footprint.

FINANCIAL CONDITION

Balance Sheet Summary

      On December 31, 2005,  total assets were  $1,939,979,000,  representing  a
$142,592,000 or 6.9% decrease when compared to total assets of $2,082,571,000 at
December 31, 2004. This decrease was driven primarily by the planned post-merger
balance  sheet  restructuring  after the  acquisition  of Sun  Bancorp,  Inc. On
October 1, 2004,  Omega  acquired Sun with assets,  liabilities  and equity with
market values of $1,153,269,000,  $1,009,294,000 and $143,975,000, respectively.
At the time of the  merger,  this  represented  an increase of 100.5% in Omega's
assets and resulted in combined assets of $2,345,007,000, as well as liabilities
of $1,988,259,000 and equity of $356,748,000.

      In the fourth  quarter of 2004,  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 (FHLB) 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.

      During the first quarter of 2005,  management  completed its restructuring
efforts with the sale of $22,515,000 in manufactured housing mortgages, the sale
of  $46,849,000  in  investment  securities  and  the  early  extinguishment  of
$55,032,000 in long term FHLB debt.  Omega  recognized a loss of $381,000 on the
sale of the loans, a gain of $374,000 on the sale of  investments  and a gain of
$1,043,000 on the early extinguishment of the FHLB debt.


6
<PAGE>

      Table 2 below  reflects  an  analysis of the sources and uses of funds for
2005 based on average balances.  Table 3 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 2005  were  $1,997,460,000  as  compared  to
$1,371,227,000  for 2004. This  represented a  $626,233,000,  or 45.7% year over
year increase due primarily to the  acquisition of Sun. 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 post-merger  balance sheet  restructuring that occurred in 2004 and
2005. These types of transactions are in addition to normal banking activity and
can have a material impact on Omega's performance.

Table 2
Changes in Uses and Sources of Funds
($ In thousands)

<TABLE>
<CAPTION>
                                            2005       Increase (Decrease)        2004      Increase (Decrease)        2003
                                          Average      ------------------       Average     -------------------      Average
                                          Balance       Amount        %         Balance       Amount       %         Balance
                                         -------------------------------------------------------------------------------------
<S>                                      <C>           <C>           <C>      <C>           <C>            <C>      <C>
FUNDING USES:
Loans ................................   $1,202,607    $ 326,290     37.2%    $  876,317    $  131,185     17.6%    $  745,132
Tax-exempt loans .....................       60,048       10,263     20.6         49,785         4,981     11.1         44,804
Investment securities ................      266,555       90,494     51.4        176,061        33,494     23.5        142,567
Tax-exempt investment securities .....       66,449      (19,118)   (22.3)        85,567       (12,175)   (12.5)        97,742
Trading securities ...................          236          236       --             --            --       --             --
Interest bearing deposits ............       21,637       (1,043)    (4.6)        22,680        12,428    121.2         10,252
Federal funds sold ...................       17,539       (2,964)   (14.5)        20,503         1,370      7.2         19,133
                                         -------------------------------------------------------------------------------------
  Total interest earning assets.......    1,635,071      404,158     32.8      1,230,913       171,283     16.2      1,059,630
Non-interest earning assets ..........      375,402      228,775    156.0        146,627        60,226     69.7         86,401
Unrealized gains
  on investments .....................        2,282       (3,912)   (63.2)         6,194        (4,093)   (39.8)        10,287
Less: Allowance for loan losses ......      (15,295)      (2,788)    22.3        (12,507)       (1,596)    14.6        (10,911)
                                         -------------------------------------------------------------------------------------
  Total uses .........................   $1,997,460    $ 626,233     45.7%    $1,371,227    $  225,820     19.7%    $1,145,407
                                         =====================================================================================
FUNDING SOURCES:
Interest bearing demand deposits .....   $  470,291    $ 126,764     36.9%    $  343,527    $   56,397     19.6%    $  287,130
Savings deposits .....................      216,924       57,148     35.8        159,776        29,651     22.8        130,125
Time deposits ........................      566,689      177,483     45.6        389,206        40,568     11.6        348,638
Repurchase agreements ................       49,457       27,741    127.7         21,716         5,258     31.9         16,458
Other borrowed funds .................      129,669       46,386     55.7         83,283        44,894    116.9         38,389
                                         -------------------------------------------------------------------------------------
Total interest bearing liabilities ...    1,433,030      435,522     43.7        997,508       176,768     21.5        820,740
Demand deposits ......................      231,144       58,423     33.8        172,721        25,436     17.3        147,285
Other liabilities ....................       12,751        3,265     34.4          9,486        (1,427)   (13.1)        10,913
Shareholders' equity .................      320,535      129,023     67.4        191,512        25,043     15.0        166,469
                                         -------------------------------------------------------------------------------------
  Total sources ......................   $1,997,460    $ 626,233     45.7%    $1,371,227    $  225,820     19.7%    $1,145,407
                                         =====================================================================================
</TABLE>

      Average   balances  of  funding  sources  for  2005  increased  45.7%,  or
$626,233,000 to $1,997,460,000 when compared to $1,371,227,000 for 2004. Omega's
funding sources  increased on average in 2004 as compared to 2003 by 19.7%. Both
of these  increases  can also be  attributed  to the  acquisition  of Sun in the
fourth quarter of 2004.

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


                                                                               7
                                  Omega Financial Corporation 2005 Annual Report
<PAGE>

      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 and the final balance sheet as of December
31, 2005.

Table 3
Omega Financial Corporation and Subsidiaries Balance Sheet Rollforward
(In thousands)

<TABLE>
<CAPTION>
                                                         Omega at    Sun Purchase   Other Activity    Omega at      Omega at
                                                        12/31/2003     10/1/04       During 2004      12/31/04      12/31/05
                                                        ---------------------------------------------------------------------
<S>                                                     <C>          <C>             <C>             <C>           <C>
ASSETS
Cash and due from banks.............................    $   32,420   $     20,510    $    (5,053)    $   47,877    $   56,194
Interest bearing deposits with other banks..........        10,683          2,322         18,117         31,122         8,908
Federal funds sold..................................        17,850             --         18,500         36,350            --
Trading securities..................................            --             --             --             --           468
Investment securities available for sale............       240,539        213,391       (125,951)       327,979       353,355
Investment in unconsolidated subsidiary.............            --            511          1,114          1,625         1,625
Loans and leases, net of unearned interest and
  allowance for loan losses.........................       777,575        654,352       (119,321)     1,312,606     1,199,373
Other assets........................................        61,099        268,823         (4,911)       325,011       320,056
                                                        ---------------------------------------------------------------------
TOTAL ASSETS........................................    $1,140,166   $  1,159,909    $  (217,505)    $2,082,570    $1,939,979
                                                        =====================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
  Non-interest bearing..............................    $  155,702   $     69,540    $     3,165     $  228,407    $  236,683
  Interest bearing..................................       751,878        567,150        (45,354)     1,273,674     1,185,847
                                                        ---------------------------------------------------------------------
Total deposits......................................       907,580        636,690        (42,189)     1,502,081     1,422,530
Short-term borrowings...............................        33,263         35,826         21,152         90,241        90,153
ESOP debt...........................................         2,521             --           (329)         2,192         1,845
Junior subordinated debentures......................            --         20,201         36,989         57,190        56,692
Long-term debt......................................        21,600        267,142       (189,145)        99,597        36,322
Other interest bearing liabilities..................           813             --             41            854           882
Other liabilities...................................         6,950         12,321         (4,595)        14,676        13,065
                                                        ---------------------------------------------------------------------
TOTAL LIABILITIES...................................       972,727        972,180       (178,076)     1,766,831     1,621,489
Shareholders' equity................................       167,439        187,729*       (39,429)       315,739       318,490
                                                        ---------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY..........    $1,140,166   $  1,159,909    $  (217,505)    $2,082,570    $1,939,979
                                                        =====================================================================
</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 2005, total loans outstanding,  net of unearned interest, decreased
$113,395,000  compared to a $540,106,000 increase in 2004. While the 2004 change
in ending loans was positively  affected by the accounts  acquired from Sun, the
2005  decrease  in loan  volume  was  largely  due to sales and other  decreases
attributed to the evaluation and integration of the Sun loan portfolio.

      One of management's  objectives in 2005 was to complete the evaluation and
integration  of  loans  assumed  from  the Sun  acquisition.  This  involved  an
extensive  review  of  underwriting  standards,  creditworthiness,  pricing  and
business  lines  assumed.  Changes  implemented,  such  as  tighter  credit  and
underwriting  standards,  risk-adjusted pricing as well as exiting some business
lines such as indirect  personal  lending,  contributed  to the decrease in loan
volumes in 2005.  Other factors  affecting loan volumes in 2005 include the sale
of $22,515,000 in manufactured  housing mortgages,  lower demand for residential
mortgages and  commercial  loans as well as increased  competitive  pressures in
Omega's market areas.

      The following table summarizes the changes in loan balances (in thousands)
over the last three years.

                                         2005         2004         2003
                                       -----------------------------------
New loans, net of repayments .......   $ (81,413)   $ (51,793)   $  21,790
Loans and leases sold ..............     (30,888)     (67,682)     (12,649)
Loans charged off ..................      (1,736)      (3,722)        (997)
Loans transferred to other
  real estate owned ................        (176)        (411)          --
Loans and leases acquired
  through acquisition of Sun .......          --      663,851           --
Market value amortization ..........         490          135           --
Other adjustments to
  carrying value ...................         328         (272)         181
                                       -----------------------------------
                                       $(113,395)   $ 540,106    $   8,325
                                       ===================================

      In  2005,  total  average  loans  were   $1,262,655,000   as  compared  to
$926,102,000  in 2004,  an increase  of  $336,553,000  or 36.3%.  The Sun region
provided an increase in average loans of $340,734,000 in 2005.

      During the year,  the commercial  loan  portfolio  increased on average by
$226,597,000, of which $222,566,000 was attributed to the Sun region.

      Mortgage  loans on average  increased by $71,082,000 in 2005 when compared
to 2004. In 2005,  average growth of $79,481,000  was attributed to the addition
of the Sun region.  Other consumer loans on average  increased by $38,874,000 in
2005  compared to the previous  year,  with  $38,687,000  attributed  to the Sun
merger.


8
<PAGE>

      Excluding the effect of the merger with Sun,  2005 was a challenging  year
for loan growth.  Management believes the reasons for this include the uncertain
economy,  a slowdown in demand for  mortgage  and  commercial  loans and intense
competition in our market.  Omega also has maintained tight credit standards and
diligent pricing standards which at times adversely affects loan growth.

      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.

      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 2006. 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, 2005 was 1.27% of total loans, net of unearned interest as compared
to  1.18% of total  loans,  net of  unearned  interest  at the end of 2004.  The
allowance decreased $162,000 when compared to December 31, 2004. Net charge-offs
for 2005 and 2004 were 0.11% and 0.38%,  respectively,  of  average  loans.  Net
charge-offs  were  $1,364,000  in 2005,  a decrease of  $2,175,000  over the net
charge-offs in 2004.

Change in Allowance for Loan Losses
(In thousands)

                                               2005        2004
                                              ------------------
Provision..................................   $ 1,202    $  (300)
Acquired from Sun..........................        --      9,505
Net charge-offs............................    (1,364)    (3,539)
Reclassification of off balance
  sheet liability..........................        --       (591)
                                              ------------------
                                              $  (162)   $ 5,075
                                              ==================

      At December  31, 2005,  non-performing  loans (as defined in Table 4) as a
percentage  of the  allowance for loan losses were 59.3% as compared to 51.8% at
December 31, 2004.  Of the  $9,178,000 of  non-performing  loans at December 31,
2005,  $8,494,000  were  collateralized  with real estate,  $639,000  with other
assets and $45,000 were unsecured.

      Non-performing  loans were 0.76% of loans as of  December  31,  2005,  and
0.61% of loans as of December 31, 2004. The increase in non-performing  loans in
2005 is due primarily to one commercial  borrower with loans totaling $2,300,000
being placed on non-accrual  status.  Although this  relationship  is current on
loan  payments,  management  has  concerns  regarding  collectability  of future
principal and interest payments.  Loans in this relationship have been allocated
a  specific  loan  loss  reserve  as of  December  31,  2005.  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 4
Non-Performing Loans
(In thousands)

                                                  December 31,
                                   ------------------------------------------
                                    2005     2004     2003     2002     2001
                                   ------------------------------------------
Non-accrual loans ..............   $6,562   $5,220   $2,588   $3,125   $2,327
Accruing loans past due
  90 days or more ..............    2,616    2,667      607      614    1,209
Restructured loans..............       --      220      223       12       32
                                   ------------------------------------------
Total non-performing
  loans.........................   $9,178   $8,107   $3,418   $3,751   $3,568
                                   ==========================================

      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.

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.


                                                                               9
                                  Omega Financial Corporation 2005 Annual Report
<PAGE>

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, as of December 31.

                              Allocation of the Allowance for Loan Losses
                            -----------------------------------------------
                             2005      2004      2003      2002      2001
                            -----------------------------------------------
                                            (In thousands)
Commercial,
  financial and
  agricultural ..........   $ 5,983   $ 6,048   $ 3,954   $ 3,761   $ 4,013
Real estate--
  commercial ............     4,624     4,073     3,486     3,644     3,686
Real estate--
  construction ..........       219       206       181       456       291
Real estate--
  mortgage ..............     1,420     1,725     1,264     1,421     1,092
Home equity .............     1,504     1,309       998     1,014     1,128
Personal ................     1,586     2,155       685       753     1,007
Lease financing .........       146       128         1         3         7
                            -----------------------------------------------
Total Allowance for
  Loan Losses ...........   $15,482   $15,644   $10,569   $11,052   $11,224
                            ===============================================

                                  Percent of Loan Type to Total Loans
                            ----------------------------------------------
                             2005      2004      2003      2002      2001
                            ----------------------------------------------
Commercial,
  financial and
  agricultural ..........     22.3%     20.5%     14.1%     15.0%     16.3%
Real estate--
  commercial ............     38.4%     37.7%     43.0%     37.6%     34.5%
Real estate--
  construction ..........      1.8%      1.9%      2.2%      4.7%      2.7%
Real estate--
  mortgage ..............     20.0%     20.9%     25.1%     25.0%     25.6%
Home equity .............     11.3%     10.0%     11.5%     11.9%     12.1%
Personal ................      5.2%      8.1%      4.1%      5.8%      8.7%
Lease financing .........      1.0%      0.9%      0.0%      0.0%      0.1%
                            ----------------------------------------------
Total Allowance for
  Loan Losses ...........    100.0%    100.0%    100.0%    100.0%    100.0%
                            ==============================================

      At December 31, 2005, $1,500,000 of the loan loss reserve was specifically
allocated to one large commercial borrower who is currently in performing status
but has been  experiencing cash flow problems and has filed for protection under
the bankruptcy  laws.  Omega has estimated and provided for known  exposures for
this  $20,000,000  credit,  however,  evaluations  of the credit  continue.  The
ongoing  analysis  may cause  this  estimate  to change in the future and actual
losses  resulting  from this  credit may  differ  materially  from this  initial
estimate.

      Omega   currently  has  fourteen   credit   relationships   with  exposure
individually  greater  then  $10,000,000.  The total of loans to these  fourteen
commercial customers at December 31, 2005 was $205,000,000.  These loans are all
secured with real estate except for the $20,000,000 loan mentioned above that is
secured with  accounts  receivable  and  inventory.  Only two of the  facilities
required an allocation of the allowance for loan losses at year end. In addition
to  the  $20,000,000  credit,  another  facility  for  $16,000,000  required  an
allocation of $300,000.


10
<PAGE>

Investments

      Total  investments,  defined as all interest  earning  assets except loans
(i.e.  investment  securities  available for sale (at market value),  investment
securities held to maturity,  trading  securities,  federal funds sold, interest
bearing  deposits  and other  interest  earning  assets)  were  $364,356,000  on
December 31, 2005,  representing a decrease of  $32,720,000  from year-end 2004.
The decrease in the portfolio can be attributed to funding needs associated with
the  balance  sheet  restructuring  from the Sun  merger.  In 2005,  investments
totaling  $46,849,000  were sold to help fund the early  extinguishment  of FHLB
debt.  In addition,  interest  bearing  deposits and federal  funds sold were at
higher  than  usual  levels  at the end of 2004 in  anticipation  of the loss of
deposits  acquired  from Sun. The expected loss in deposits was primarily due to
pricing changes on public funds.  The following table  summarizes how the ending
balances (in thousands) changed annually in each of the last three years.

                                         2005         2004         2003
                                       -----------------------------------
Purchases of investment
  securities .......................   $ 147,487    $ 112,733    $ 100,432
Sales and maturities of
  investment securities ............    (113,278)    (234,148)    (106,383)
Investments acquired through
  acquisition of Sun ...............          --      213,391           --
Adjustment in market value
  of AFS securities ................      (7,310)      (2,590)      (3,162)
Amortization/Accretion .............      (1,523)      (1,946)      (1,856)
Trading account, net change ........         468           --           --
Federal funds sold,
  net change .......................     (36,350)      18,500      (16,050)
Interest bearing
  deposits acquired ................          --        2,322           --
Interest bearing deposits
  with others, net change ..........     (22,214)      18,118        1,925
                                       -----------------------------------
                                       $ (32,720)   $ 126,380    $ (25,094)
                                       ===================================

      On average,  investments  increased by $69,887,000,  or 22.9% during 2005,
after increasing by $35,117,000,  or 13.0% during 2004. The increase in 2005 was
primarily  the  result of a shift in the mix of  earning  assets  from  loans to
investments.

      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, 2005,  the  amortized  cost of the entire  securities  portfolio
exceeded market value by $1,886,000 as compared to December 31, 2004 when market
value was greater  than  amortized  cost by  $5,424,000.  The  weighted  average
maturity of the investment  portfolio was 1 year and 7 months as of December 31,
2005 as  compared  to 2 years  and 6  months  at the end of 2004.  The  weighted
average  maturity  has  remained  short in order to  achieve a desired  level of
liquidity. Table 6 (located on page 17) shows the remaining maturity or earliest
possible repricing for investment securities.

Non-Interest Earning Assets

      Non-interest earning assets on average increased $231,261,000, or 61.6% in
2005,  and  increased  $60,226,000,  or  69.7%  in  2004.  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.  In 2005,  a  revaluation  of the core deposit  intangible  resulted in a
decrease of  $6,483,000  in intangible  assets and a  corresponding  increase in
goodwill  and  deferred  tax asset.  The  opening  of two new  branch  locations
contributed  to  the  increase  in  premises  and  equipment.  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  in 2004 is primarily the result of Sun's
23 branches and operating leases. The $10,519,000  reduction from other activity
in 2004 is due to depreciation,  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 and the sale of operating  leases of  $8,730,000.
Other changes of particular  importance are the intangible  assets and goodwill.
The  $17,077,000 of  intangibles  acquired in 2004 as a result of the Sun merger
consist of the core deposit intangible, estimated at the time 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
($ In thousands)                                 2005      Total    Balances   Activities     2003
                                                ----------------------------------------------------
<S>                                             <C>      <C>        <C>        <C>           <C>
Cash and due from banks .....................   $ 8,317  $ 15,457   $ 20,510   $   (5,053)   $(3,629)
Premises and equipment, net..................     2,882    20,980     31,499      (10,519)      (371)
Other real estate owned......................    (2,126)    2,341        396        1,945        512
Bank-owned life insurance....................     2,299    35,711     34,129        1,582      5,395
Investment in limited partnerships...........    (1,993)    8,605      8,580           25         --
Intangible assets............................    (7,468)   16,676     17,077         (401)       (10)
Goodwill.....................................     4,045   156,959    156,959           --         --
Other receivables and prepaid expenses.......    (2,595)   22,640     20,183        2,457         (2)
                                                ----------------------------------------------------
                                                $ 3,361  $279,369   $289,333   $   (9,964)   $ 1,895
                                                ====================================================
</TABLE>


                                                                              11
                                  Omega Financial Corporation 2005 Annual Report
<PAGE>

Deposits

      For the year 2005,  total  deposits  decreased  $79,552,000.  The  primary
reason for this decrease was the loss in deposit base from the Sun region.  This
loss was anticipated and is due to changes in interest rates paid after the 2004
acquisition  of Sun.  In 2005,  total  deposits  from the Sun  region  decreased
$80,273,000,  with demand deposits decreasing $594,000,  interest bearing demand
decreasing   $57,138,000,   savings  decreasing  $6,223,000  and  time  deposits
decreasing  $16,318,000.  A  significant  portion of the  decrease  in  interest
bearing  demand  deposits  can be  attributed  to a change in pricing on premium
priced  public funds  acquired from Sun.  Management  does expect this runoff to
cease in 2006. In addition, as loan volume slowed in 2005, Omega's balance sheet
management  strategy provided for a less aggressive approach to pricing deposits
and therefore  experienced  limited growth otherwise in 2005. From year-end 2003
to year-end 2004, total deposits increased by $594,502,000.

      In  2004,   the   acquisition   of  Sun  accounted  for  new  deposits  of
$636,690,000;   however,  by  year-end  2004  these  balances  had  declined  by
$38,730,000 to $597,945,000 as a result of anticipated runoff. This initial loss
of deposits was the result of Omega  instituting  more market oriented  pricing.
The 2004 losses in Sun's deposit  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 in 2004.

      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
                                                       2005       Total     Balances   Activities      2003
                                                     --------------------------------------------------------
<S>                                                  <C>         <C>        <C>        <C>           <C>
Demand deposits ..................................   $  8,275    $ 72,706   $ 69,540   $    3,166    $  7,204
Interest bearing demand deposits .................    (59,701)    191,456    207,794      (16,338)      8,897
Savings deposits .................................    (13,296)     85,780     84,524        1,256       9,647
Time deposits, $100,000 and greater ..............     (8,133)     52,383     62,231       (9,848)     (9,254)
Time deposits, other .............................     (6,697)    192,177    212,601      (20,424)    (28,169)
                                                     --------------------------------------------------------
                                                     $(79,552)   $594,502   $636,690   $  (42,188)   $(11,675)
                                                     ========================================================
</TABLE>

      Average deposits  increased  $419,818,000,  or 39.4% to  $1,485,048,000 in
2005  as  compared  to  an  increase  in  2004  of  $152,052,000,  or  16.7%  to
$1,065,230,000.  In 2005, on an average basis,  the acquisition of Sun accounted
for  $419,653,000  of new deposits.  The 2005 average growth from Sun's deposits
included $47,618,000 in demand deposits, $132,259,000 in interest bearing demand
deposits, $58,657,000 in savings and $181,119,000 in time deposits.

      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.  During the low interest rate
environment of the past few years,  many customers chose to shift their funds to
more liquid  transaction  accounts  from time  deposits.  However,  in 2005,  as
interest  rates on deposits  began to increase,  customers have become more rate
focused  and are more  willing to shift some funds back to time  deposits.  As a
result, competitive pricing pressures on deposit pricing have increased in 2005,
and are expected to continue in 2006.

      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 5
Changes in Deposits
($ in thousands)

<TABLE>
<CAPTION>
                                                  2005       Increase (Decrease)      2004      Increase (Decrease)     2003
                                                 Average     ------------------     Average     ------------------    Average
                                                 Balance       Amount       %       Balance       Amount      %       Balance
                                                -------------------------------------------------------------------------------
<S>                                             <C>          <C>           <C>     <C>          <C>          <C>     <C>
Interest bearing demand deposits ............   $  470,292   $  126,765    36.9%   $  343,527   $   56,397   19.6%   $  287,130
Savings deposits ............................      216,923       57,147    35.8       159,776       29,651   22.8       130,125
Demand deposits .............................      231,144       58,423    33.8       172,721       25,436   17.3       147,285
                                                -------------------------------------------------------------------------------
  Total core (transaction) accounts .........      918,359      242,335    35.8       676,024      111,484   19.7       564,540
Time deposits, $100,000 or greater ..........       96,802       36,635    60.9        60,167        6,380   11.9        53,787
Time deposits, other ........................      469,887      140,848    42.8       329,039       34,188   11.6       294,851
                                                -------------------------------------------------------------------------------
Total time deposits .........................      566,689      177,483    45.6       389,206       40,568   11.6       348,638
                                                -------------------------------------------------------------------------------
  Total deposits .............................  $1,485,048   $  419,818    39.4%   $1,065,230   $  152,052   16.7%   $  913,178
                                                ===============================================================================
</TABLE>


12
<PAGE>

Other Interest Bearing Liabilities

      Omega's  average  balances for  repurchase  agreements  and other borrowed
funds increased  $74,212,000 in 2005 compared to 2004. This can be attributed to
the borrowings acquired in the Sun merger as well as new borrowings used to fund
the purchase of Sun.  During the fourth  quarter of 2004,  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
2004, 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.  Omega paid off both of
these  borrowings  in the  first  quarter  of  2005.  (See  Note 11 of  Notes to
Consolidated Financial Statements).

Shareholders' Equity

      During 2005,  total  shareholders'  equity  increased by  $2,751,000.  The
following table  summarizes how the components of equity (in thousands)  changed
annually in each of the last three years.

                                                 2005        2004         2003
                                               --------------------------------
Net income .................................   $ 22,875    $ 17,021    $ 17,185
Dividends ..................................    (15,651)    (11,388)     (9,879)
Stock options exercised ....................      1,904       2,427       2,389
Repurchase of stock ........................     (1,984)     (2,488)     (2,886)
Net change in unrealized
  security gains............................     (4,752)     (1,683)     (2,034)
Acquisition of Sun Bancorp..................         --     143,975*         --
Other.......................................        359         436         554
                                               --------------------------------
                                               $  2,751    $148,300    $  5,329
                                               ================================

*     Equity  recorded from the  acquisition of Sun was the fair value of assets
      acquired of $187,729,000 less cash paid of $43,754,000.

      Shareholders'  equity  continued to be an important  funding source during
2005,  providing  an  average  balance  of  $315,739,000,  as  compared  to  the
$318,490,000  provided in 2004.  Dividend payout ratios on the common stock were
68.30% for 2005, 66.91% for 2004 and 55.8% for 2003.  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 $1,483,000  in 2005,  $3,935,000 in 2004 and
$1,098,000 in 2003.  At December 31, 2005,  Omega held 70,815 shares of stock in
treasury at a cost of $1,984,000. There were no shares in treasury at the end of
2004 as it was all utilized in the Sun acquisition.  At December 31, 2003, Omega
held  1,589,545  shares  of  stock in  treasury  at a cost of  $48,529,000.  The
increase in treasury stock is the result of the Omega stock  repurchase  program
in  effect  during  2005  (see  Note  16  of  Notes  to  Consolidated  Financial
Statements).

      Omega  increased  the return to  shareholders  in 2005 by  increasing  its
dividend  3.3% to $1.24 per common  share.  Per share common  dividends in prior
years were $1.20 and $1.17 in 2004 and 2003, respectively. Omega paid a dividend
per  preferred  share of $1.35 in 2003.  All  preferred  stock was  converted to
common stock in the fourth quarter of 2003.

      Omega's  book  value per share at  December  31,  2005 was $25.28 and on a
tangible book basis it was $11.76. The tangible book value includes the goodwill
and intangible assets that resulted from the Sun merger in 2004. At December 31,
2004,  book value was $25.07 and tangible  book basis was $11.28.  Book value in
2003 was $19.79. Intangible assets for 2003 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, 2005 and 2004,  Omega's  Tier I capital  ratio was 15.7% and 13.5%,
respectively,  and its Total  capital  ratio was 17.0% and 14.6%,  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, 2005 and 2004, Omega's
leverage ratio was 11.1% and 15.6%,  respectively,  against a required  leverage
ratio of 4% (see Note 24 of Notes to the Consolidated Financial Statements).

      Omega's equity to assets ratio for 2005, 2004 and 2003 was 16.42%,  15.16%
and 14.69%, respectively.


                                                                              13
                                  Omega Financial Corporation 2005 Annual Report
<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. These simulations are 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, 2005 was $1,777,000,  or 2.73% of net interest income,  compared to
$2,658,000,  or 4.09% of net  interest  income at risk as of December  31, 2004.
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 in                                     Total
Interest    Change     Change      Change    Change
  Rates     Due to     Due to      Due to    Due to
 (Basis    Repricing   Basis      Customer  Interest
 Points)     Risk       Risk      Options   Rate Risk
-----------------------------------------------------
   300      $  316     $ 4,758    $  66      $ 5,140
   200         235       3,216       49        3,500
   100         123       1,629       33        1,785
     0           0           0        0            0
  -100        (120)     (1,630)     (27)      (1,777)
  -200        (215)     (3,260)     (65)      (3,540)
  -300        (377)     (4,889)    (109)      (5,375)

      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,
2005,  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, 2005.

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


  Change in       Change        Change     Change     Total Change
   Interest       Due to        Due to     Due to        Due to
    Rates        Repricing      Basis     Customer      Interest
(Basis Points)     Risk          Risk     Options      Rate Risk
------------------------------------------------------------------
      300        $(25,757)    $ 32,200     $ 4,770      $ 11,213
      200         (17,698)      22,285       3,530         8,117
      100          (9,091)      11,573       1,960         4,442
        0               0            0           0             0
     -100           9,991      (12,496)     (3,995)       (6,500)
     -200          20,597      (25,985)     (8,084)      (13,472)
     -300          32,017      (40,544)    (12,926)      (21,453)

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 6  (located  on page 17) shows the
period and cumulative  static gaps for various time intervals as of December 31,
2005. 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 positive gap position of  $10,895,000 at December
31, 2005,  indicating more 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


14
<PAGE>

transaction accounts and short-term certificates into higher-paying, longer-term
certificates of deposit.

      As of December 31, 2005,  should  interest  rates rise by 100 basis points
immediately  and  Omega's  balances  do not grow  and the mix  does not  change,
repricing risk would cause net interest  income to increase over the next twelve
months by  $123,000.  If  interest  rates  would  decline  by 100  basis  points
immediately,  repricing  risk would  cause net  interest  income to  decrease by
$120,000 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.

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 Due to   Change Due to     Change Due to
Interest Rates        Prime Basis    Treasury Basis     Total Basis
(Basis Points)           Risk             Risk             Risk
--------------------------------------------------------------------
      300              $ 10,738         $(5,980)         $  4,758
      200                 7,159          (3,943)            3,216
      100                 3,579          (1,950)            1,629
        0                     0               0                 0
     -100                (3,579)          1,949            (1,630)
     -200                (7,159)          3,899            (3,260)
     -300               (10,738)          5,849            (4,889)

      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  indicates that the Corporation's net interest income would increase by
$3,579,000  and  market  value of  equity  would  decrease  by  $5,150,000.  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  indicates  that the
Corporation's net interest income would decrease  $1,950,000 and market value of
equity would  increase  $16,723,000.  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 Due to   Change Due to   Change Due to
Interest Rates    Prime Basis    Treasury Basis   Total Basis
(Basis Points)       Risk             Risk           Risk
--------------------------------------------------------------
      300          $(14,955)        $ 47,155       $ 32,200
      200           (10,132)          32,417         22,285
      100            (5,150)          16,723         11,573
        0                 0                0              0
     -100             5,329          (17,825)       (12,496)
     -200            10,849          (36,834)       (25,985)
     -300            16,570          (57,114)       (40,544)

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
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.  Customer options resulting from a 100 basis
point  decrease in interest  rates would cause net  interest  income to decrease
$27,000 and market value of equity to decrease $3,995,000.

Liquidity and Capital Resources

      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 or could 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  depositor  needs?  This would be the
      run on the bank or worst-case scenario.

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

      When measuring  liquidity,  total liquid assets must be  determined.  This
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.


                                                                              15
                                  Omega Financial Corporation 2005 Annual Report
<PAGE>

      The  short-term  liabilities  are  deducted  from  the  liquid  assets  to
determine a surplus or deficit and a percentage  of total assets is  determined.
At December 31, 2005, total liquid assets were $234,504,000 while the short-term
liabilities  were  $131,932,000.  This  left  a  surplus  of  liquid  assets  of
$102,572,000, or 5.3% of total assets.

      Management  believes  that a surplus of not less than 5% 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.  As  disclosed  in Note 20 of Notes to the  Consolidated  Financial
Statements,  most of Omega's  financial  assets at December 31, 2005 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, 2005, Omega had unsecured federal funds lines totaling
$62,500,000.  At December 31, 2005,  Omega had  $5,000,000  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,  2005  provided  $25,260,000  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  $103,762,000.  This borrowing limit could be increased to a
maximum amount of $474,045,000 with the purchase of additional FHLB stock. These
borrowings are secured by investment  securities and first mortgage  residential
real estate loans. At December 31, 2005,  Omega had  $34,232,000  outstanding in
term loans and $14,500,000 in overnight  advances.  (See Note 11 of Notes to the
Consolidated Financial Statements.)

      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 84.31% at December 31, 2005 and
87.39% at December 31, 2004.  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.  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 $98,404,000
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 would require the  Corporation to replace
those funds with higher cost borrowings in the future.

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.  These include commitments to extend credit,  unused lines of credit,
as well as standby letters of credit.  (See Note 21 of Notes to the Consolidated
Financial  Statements.)  Because many commitments are expected to expire without
being drawn upon,  the total  commitment  amounts do not  necessarily  represent
future cash requirements. The Corporation does not expect that these commitments
will have an adverse effect on its liquidity position.

      Contractual  Obligations--Presented below, are the significant contractual
obligations of the Corporation as of December 31, 2005, 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 In
                                                                    `           ----------------------------------------------------
                                                           Note                   Less Than       One to       Three to   More Than
                                                         Reference     Total      One Year      Three Years   Five Years  Five Years
                                                                    ----------------------------------------------------------------
<S>                                                         <C>      <C>          <C>           <C>           <C>         <C>
Certificates of deposits(a)...........................      10       $  594,012   $  307,274    $   214,941   $   65,199  $    6,598
Other deposits(b).....................................                  860,458      860,458             --           --          --
Other interest-bearing liabilities....................                      882          107            151           90         534
Federal funds borrowed and security
  repurchase agreements(a)............................      11           70,563       70,563             --           --          --
Borrowed funds(a).....................................      11           19,626       19,626             --           --          --
Junior subordinated debentures(a).....................      12          161,662        3,955          7,909        7,909     141,889
Long-term debt(a).....................................      11           41,235        2,886         18,758       19,352         239
Operating lease obligations...........................      13            2,089          548            722          400         419
Supplemental executive retirement plan................      19            3,063          282            564          564       1,653
Purchase obligations
  3rd party data processor contract...................      23            8,435        2,532          5,064          839          --
                                                                    ----------------------------------------------------------------
Total.................................................               $1,762,025   $1,268,231    $   248,109   $   94,353  $  151,332
                                                                    ================================================================
</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, 2005. 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.


16
<PAGE>

Table 6
Maturity Distribution as of December 31, 2005
(In thousands)
Remaining Maturity/Earliest Possible Repricing

<TABLE>
<CAPTION>
                                                                   Over Three    Over Six     Over One
                                                        Three      Months But     Months      Year But       Over
                                                        Months     Within Six   But 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 .......................   $    8,808   $      100   $       --   $       --   $       --   $    8,908
  Federal funds sold ..............................           --           --           --           --           --           --
  Investment securities:
   U.S. Treasury securities and obligations of other
    U.S. Government agencies and corporations .....           --       11,395       62,591      136,137           --      210,123
  Obligations of state and political subdivisions .        7,203       11,656       14,002       22,828           50       55,739
  Corporate and other securities ..................          200          597          199        2,095          297        3,388
  Mortgage-backed securities ......................        3,139        3,175        6,452       52,819        3,057       68,642
  Stocks ..........................................           --           --           --           --       15,463       15,463
  Investment in unconsolidated subsidiary .........           --           --           --           --        1,625        1,625
  Trading account assets ..........................          468           --           --           --           --          468
Loans:
  Commercial, financial and agricultural ..........      183,876        4,822       14,659       66,409        1,396      271,162
  Real estate-commercial ..........................      154,031       29,420       55,062      212,377       14,834      465,724
  Real estate-construction ........................       14,781          608          352        6,134          125       22,000
  Real estate-mortgage ............................        5,254       11,623       22,991      110,741       91,997      242,606
  Home equity .....................................       58,124        3,269        6,175       39,809       30,119      137,496
  Personal (net of unearned discount) .............       16,583        5,193       10,360       30,904          642       63,682
  Lease financing (net of unearned interest) ......        1,319        1,183        2,274        7,409           --       12,185
                                                      ---------------------------------------------------------------------------
Total Interest Earning Assets .....................      453,786       83,041      195,117      687,662      159,605    1,579,211
                                                      ---------------------------------------------------------------------------
Interest Bearing Liabilities
  Demand deposits .................................      184,409        2,240        4,480      228,762           --      419,891
  Savings deposits ................................       71,502       10,035       54,192       68,156           --      203,885
  Certificates of deposit over $100,000 ...........       20,342        7,927       21,114       45,560           --       94,943
  Time deposits ...................................       82,942       62,031      106,956      215,548          877      468,354
  Short-term borrowings ...........................       90,153           --           --           --           --       90,153
  Junior subordinated debt ........................          125          125          249       39,107       17,086       56,692
  Long-term debt ..................................          321          336          688       34,747          230       36,322
  Other interest bearing liabilities ..............          882           --           --           --           --          882
                                                      ---------------------------------------------------------------------------
Total Interest Bearing Liabilities ................      450,676       82,694      187,679      631,880       18,193    1,371,122
                                                     ---------------------------------------------------------------------------
Gap ...............................................   $    3,110   $      347   $    7,438   $   55,782   $  141,412      208,089
                                                     ===========================================================================
Cumulative Gap.....................................   $    3,110   $    3,457   $   10,895   $   66,677   $  208,089
                                                     ==============================================================
Cumulative sensitivity ratio.......................         1.01         1.01         1.02         1.05         1.15
Commercial, financial and agricultural
 loans maturing after one year with:
  Fixed interest rates.............................                                          $   24,112   $    1,396   $   25,508
  Variable interest rates..........................                                              42,297           --       42,297
                                                                                             ------------------------------------
  Total............................................                                          $   66,409   $    1,396   $   67,805
                                                                                             ====================================
</TABLE>

RESULTS OF OPERATIONS

2005 Financial Performance Overview

      Omega  reported  net  income  for the  year  ended  December  31,  2005 of
$22,875,000,  representing  $1.81 per diluted share compared to $17,021,000,  or
$1.78 per  diluted  share for 2004.  The  increase  in net income  reflects  the
successful  integration  of Sun  Bancorp,  which merged into Omega in the fourth
quarter  of 2004,  as well as the  ability of Omega to  maintain a net  interest
margin of 3.92%,  on a  tax-equivalent  basis,  in both 2005 and 2004  despite a
challenging interest rate environment.

      For the  year  ended  December  31,  2005,  Omega's  net  income  for 2005
represented a return on average assets (ROA) of 1.15% compared to 1.24% in 2004.
Omega's return on average  tangible  assets,  which excludes from average assets
the goodwill and intangibles  resulting from the Sun  acquisition,  was 1.25% in
2005 compared to 1.26% in 2004. Omega management 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.


                                                                              17
                                  Omega Financial Corporation 2005 Annual Report
<PAGE>

Summarized  below are the components of net income (in thousands of dollars) and
the contribution of each to ROA for 2005 and 2004.

<TABLE>
<CAPTION>
                                                   2005                        2004
                                           --------------------------------------------------
                                                           % of                        % of
                                                          Average                     Average
                                                          Assets                       Assets
                                           --------------------------------------------------
<S>                                        <C>              <C>       <C>               <C>
Net interest income ....................   $   61,670        3.09%    $   45,705         3.33%
Loan loss (provision) credit ...........       (1,202)      (0.06)           300         0.02
Trust fees .............................        6,007        0.30          4,027         0.29
Deposit service fees ...................        9,344        0.47          7,076         0.52
Other fees .............................        9,224        0.46          6,291         0.46
BOLI ...................................        2,299        0.12          1,581         0.12
Security gains .........................        2,327        0.12            963         0.07
Gain on debt extinguishment ............           --        0.00            570         0.04
Gains (loss) on sale of other assets ...          667        0.03           (102)       (0.01)
                                           --------------------------------------------------
Total non-interest income ..............       29,868        1.50         20,406         1.49
Employee expense .......................      (30,555)      (1.53)       (22,888)       (1.67)
Occupancy and equipment ................       (8,474)      (0.42)        (6,036)       (0.44)
Other non-interest expense .............      (21,471)      (1.07)       (14,742)       (1.08)
Amortization of intangibles ............         (779)      (0.05)          (402)       (0.03)
                                           --------------------------------------------------
Total non-interest expense .............      (61,279)      (3.07)       (44,068)       (3.21)
Income tax expense .....................       (6,182)      (0.31)        (5,322)       (0.39)
                                           --------------------------------------------------
Net income .............................   $   22,875        1.15%    $   17,021         1.24%
                                           ==================================================
 Average assets.........................   $1,997,706                 $1,371,227
</TABLE>

      The Sun merger had a material impact on Omega's 2004 results.  In order to
properly analyze 2005 earnings  compared to 2004,  management has identified the
effects on 2004 earnings caused by the addition of Sun on October 1, 2004. Table
7 puts forth the  approximate  effect of Sun's former  operations  and the gains
realized from the restructuring of Sun's balance sheet.

Table 7
Omega Financial Corporation Income Statement Analysis
(In thousands)

<TABLE>
<CAPTION>
                                                                            Estimated          Estimated
                                                           Omega 2005    Contribution to    Contribution to   Omega 2004
                                                          Consolidated     2004 Results      2004 Results    Consolidated    2005
                                                             Income      from Pre-Merger      from Former       Income     Compared
                                                           Statement     Omega Operations   Sun Operations    Statement     to 2004
                                                          -------------------------------------------------------------------------
<S>                                                        <C>             <C>                 <C>              <C>         <C>
Total interest income..................................    $91,175         $52,415             $9,956           $62,371     $28,804
Total interest expense.................................     29,505          12,238              4,429            16,666      12,838
                                                          -------------------------------------------------------------------------
Net interest income....................................     61,670          40,177              5,527            45,705      15,966
Provision (credit) for loan losses.....................      1,202            (300)                --              (300)      1,502
Service fee and other operating income.................     26,874          15,840              3,134            18,975       7,900
Net gains on sales of assets and
  early extinguishment of debt.........................      2,994             331              1,100             1,431       1,563
                                                          -------------------------------------------------------------------------
Total non-interest income..............................     29,868          16,171              4,234            20,406       9,463
Salaries and employee benefits.........................     30,555          19,654              3,234            22,888       7,667
Other operating expense................................     30,724          17,899              3,279            21,180       9,546
                                                          -------------------------------------------------------------------------
Total non-interest expense.............................     61,279          37,553              6,513            44,068      17,213
                                                          -------------------------------------------------------------------------
Income before tax......................................     29,057          19,095              3,248            22,343       6,714
Provision for federal income tax.......................      6,182           4,549                773             5,322         860
                                                          -------------------------------------------------------------------------
Net income.............................................    $22,875         $14,546             $2,475           $17,021     $ 5,854
                                                          =========================================================================
</TABLE>


18
<PAGE>

Key Ratio Schedule (in %)

                                   2005      2004      2003      2002      2001
                                  ----------------------------------------------
Return on
 average assets ..............     1.15%     1.24%     1.50%     1.58%     1.56%
Return on average
 tangible assets .............     1.25%     1.26%     1.50%     1.58%     1.56%
Return on average
 stated equity ...............     7.13%     8.89%    10.32%    11.32%    11.50%
Return on average
 tangible equity .............    15.33%    11.84%    10.32%    11.32%    11.50%
Yield on
 earning assets ..............     5.57%     5.06%     5.36%     6.10%     7.19%
Cost of funds ................     1.80%     1.35%     1.29%     1.81%     2.92%
Net interest
 margin ......................     3.77%     3.71%     4.07%     4.28%     4.27%
Net interest margin,
 tax-equivalent ..............     3.92%     3.92%     4.32%     4.58%     4.57%
Non-interest
 income to
 average assets ..............     1.35%     1.38%     1.34%     1.26%     1.14%
Non-interest
 expenses to
 average assets ..............     3.07%     3.22%     3.28%     3.15%     3.11%

          The key factors that defined the 2005 results are as follows:

o     Successful  integration  of Sun,  resulting in cost savings that  exceeded
      expectations

o     Maintaining  net  interest  margin  despite a  challenging  interest  rate
      environment

o     One-time gains due to balance sheet restructuring

o     Ongoing expense control

o     Declining earning assets in 2005

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
67% of total  revenues for 2005.  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 changes
in interest  rates,  relationships  between various rates and 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 8 (located on pages 20-21) shows average
asset and liability  balances,  average  interest rates and interest  income and
expense  for the  period  2003 to  2005.  In  addition,  it  shows  the  changes
attributable to the volume and rate components of net interest income.

      Total average  loans were  $1,262,655,000  in 2005 at an average  weighted
yield of 6.25% that produced  $78,907,000 in interest income. This represented a
$336,553,000,  or 36.3% increase in average loan volumes from 2004.  This volume
increase  can be  primarily  attributed  to the Sun  acquisition  as 2005  was a
challenging year for loan growth due to the continued evaluation of the Sun loan
portfolio  as well as  continued  competitive  pressures  in pricing  and credit
standards.  The yield  increased  48 basis  points to 6.25%  from 5.77% in 2004,
which  resulted in an  increase of  $4,761,000  in interest  income,  while mix,
volume and calendar changes increased  interest income $20,804,000 when compared
to 2004.  The  combination  of the rate,  volume and mix effects  resulted in an
increase of  $25,565,000,  or 47.8% in total loan  interest.  The 48 basis point
increase in loan yields in 2005 is largely  attributable  to the higher interest
rate environment in 2005 compared to 2004.

      Investment securities averaged  $333,486,000,  an increase of $71,858,000,
or 27.5% from the average investment securities in 2004. This increase is due to
assets  acquired in the Sun acquisition as well as a shift in the mix of earning
assets from loans to investments in 2005. The average  weighted yield  increased
to 3.37% from 3.22% in 2004.  Interest  bearing deposits and federal funds sold,
as a group on average, decreased 9.3%, or $4,007,000.

      Total interest earning assets averaged  $1,635,317,000 at a yield of 5.58%
and produced  total  interest  income of  $91,175,000  for 2005. The increase in
average  earning  assets of  $404,404,000  in 2005 over 2004 was  primarily  the
result of the Sun acquisition. The yield on earning assets increased by 51 basis
points to 5.58% in 2005.  Changes in interest  rates  resulted in an increase of
$5,521,000,  or 8.9%, in interest income while volume,  mix and calendar changes
increased it $23,362,000, or 37.5%.

      Total interest bearing  liabilities  averaged  $1,430,970,000 at a cost of
$29,505,000  carrying a composite rate of 2.06%. This represented an increase in
interest bearing  liabilities of 43.5%, or $433,461,000 from 2004. The composite
rate was 1.67% in 2004.  Interest  expense  increased  $4,031,000  due to higher
rates and increased  $8,847,000 due to volume,  calendar and mix changes.  These
changes  resulted  in a total  increase  of  $12,878,000,  or 77.3% in  interest
expense.  Once again,  the Sun  acquisition  was the key factor in the growth of
interest  bearing  liabilities,  with  increases  in  deposits  as well as other
borrowings. In addition, in order to help fund the Sun acquisition, Omega issued
$36,000,000, in trust preferred securities in September 2004.

      Non-interest   bearing  funding  sources,   including   equity,   averaged
$566,736,000  in 2005,  compared  to  $373,718,000  in 2004,  for an increase of
$193,018,000, or 51.6%. 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 45 basis points to 1.80% in
2005  from  1.35% in 2004.  The  increase  in  funding  cost was the  result  of
increased  interest  rates  as well  as  growth  in  long-term  debt.  Partially
offsetting  this  increased  cost is the fact  that a higher  percentage  of the
earning assets are being funded by non-interest  bearing funding sources in 2005
than in 2004. For 2005, this ratio was 34.7%; in 2004 it was 30.4%.

      Net interest  income was $61,670,000 for 2005, an increase of $15,965,000,
or 34.9%,  from 2004.  The increase in net interest  income was the result of an
increase  of  $1,490,000  due  to  interest  rate  effects  and an  increase  of
$14,515,000 due to volume, mix and calendar changes. The net interest margin was
3.77%  in 2005  and  3.71% in 2004.  On a fully  tax-equivalent  basis,  the net
interest margin remained at 3.92% in 2004 and 2005.


                                                                              19
                                  Omega Financial Corporation 2005 Annual Report
<PAGE>

Table 8
Average Balance Sheets and Net Interest Income Analysis
(In thousands)

<TABLE>
<CAPTION>

                                                           -----------------------------------------
                                                                              2005
                                                           -----------------------------------------
                                                            Average                         Yield/
                                                           Balance(1)        Interest        Rate
                                                           -----------------------------------------
<S>                                                        <C>             <C>                  <C>
ASSETS
Interest earning assets:
 Taxable loans(5) ......................................   $ 1,202,607     $    76,204          6.34%
 Tax-exempt loans ......................................        60,048           2,703          4.50
                                                           -----------------------------------------
   Total loans .........................................     1,262,655          78,907          6.25
 Taxable investment securities .........................       267,037           9,314          3.49
 Tax-exempt investment securities ......................        66,449           1,917          2.88
                                                           -----------------------------------------
   Total investment securities .........................       333,486          11,231          3.37
 Interest bearing deposits .............................        21,637             551          2.55
 Federal funds sold ....................................        17,539             486          2.77
                                                           -----------------------------------------
Total interest earning assets ..........................     1,635,317          91,175          5.58
Non-interest earning assets:
  Cash and due from banks ..............................        53,629
  Allowance for loan losses ............................       (15,295)
  Premises and equipment ...............................        37,447
  Other assets(7) ......................................       286,608
                                                           -----------
   Total assets ........................................   $ 1,997,706
                                                           ===========

LIABILITIES AND SHAREHOLDERS' EQUITY
Interest bearing liabilities:
 Interest bearing demand deposits(2) ..................    $   470,292           3,963          0.84
 Savings deposits .......................................      216,923           1,187          0.55
 Time deposits .........................................       566,689          16,541          2.92
 Other, including short-term borrowings, long-term debt
    and other interest bearing liabilities .............       177,066           7,814          4.41
                                                           -----------------------------------------
Total interest bearing liabilities .....................     1,430,970          29,505          2.06
                                                                           -----------
Non-interest bearing liabilities:
  Demand deposits ......................................       231,144
  Other ................................................        14,810
Shareholders' equity ...................................       320,782
                                                           -----------
   Total liabilities and shareholders' equity ..........   $ 1,997,706
                                                           ===========
Net interest income ....................................                   $    61,670
                                                                           ===========
Net yield on interest earning assets(3) ................                                        3.77%
                                                                                         ===========
Net interest income and yield-tax equivalent basis(4) ..                   $    64,158          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:  $2,282
      in 2005, $6,194 in 2004, and $10,287 in 2003.


20
<PAGE>

Table 8
Average Balance Sheets and Net Interest Income Analysis
(In thousands)

<TABLE>
<CAPTION>
                                                                                      Years Ended December 31,
                                                                 -----------------------------------------------------------------
                                                                                 2004                              2003
                                                                 ------------------------------     ------------------------------
                                                                   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) ......................................         $  876,317    $51,077     5.83%    $  745,132   $ 45,852     6.15%
 Tax-exempt loans ......................................             49,785      2,319     4.66         44,804      1,858     4.15
                                                                 -----------------------------------------------------------------
   Total loans .........................................            926,102     53,396     5.77        789,936     47,710     6.04
 Taxable investment securities .........................            176,061      6,033     3.43        142,567      5,650     3.96
 Tax-exempt investment securities ......................             85,567      2,385     2.79         97,742      3,115     3.19
                                                                 -----------------------------------------------------------------
   Total investment securities .........................            261,628      8,418     3.22        240,309      8,765     3.65
 Interest bearing deposits .............................             22,680        311     1.37         10,252        103     1.00
 Federal funds sold ....................................             20,503        246     1.20         19,133        205     1.07
                                                                 -----------------------------------------------------------------
Total interest earning assets ..........................          1,230,913     62,371     5.07      1,059,630     56,783     5.36
Non-interest earning assets:
 Cash and due from banks ...............................             37,607                             30,350
 Allowance for loan losses .............................            (12,507)                           (10,911)
 Premises and equipment ................................             20,446                             14,556
 Other assets(7) .......................................             94,768                             51,782
                                                                 ----------                         ----------
   Total assets ........................................         $1,371,227                         $1,145,407
                                                                 ==========                         ==========

LIABILITIES AND SHAREHOLDERS' EQUITY
Interest bearing liabilities:
 Interest bearing demand deposits(2) ...................         $  343,527      1,621     0.47     $  287,130      1,428     0.50
 Savings deposits ......................................            159,776        963     0.60        130,125      1,127     0.87
 Time deposits .........................................            389,206     10,380     2.67        348,638      9,784     2.81
 Other, including short-term borrowings, long-term debt
    and other interest bearing liabilities .............            105,000      3,702     3.53         54,847      1,367     2.49
                                                                 -----------------------------------------------------------------
Total interest bearing liabilities .....................            997,509     16,666     1.67        820,740     13,706     1.67
                                                                               -------                           --------
Non-interest bearing liabilities:
  Demand deposits ......................................            172,721                            147,285
  Other ................................................              9,485                             10,913
Shareholders' equity ...................................            191,512                            166,469
                                                                 ----------                         ----------
   Total liabilities and shareholders' equity ..........         $1,371,227                         $1,145,407
                                                                 ==========                         ==========
Net interest income ....................................                       $45,705                           $ 43,077
                                                                               =======                           ========
Net yield on interest earning assets(3) ................                                   3.71%                              4.07%
                                                                                        =======                             ======
Net interest income and yield-tax equivalent basis(4) ..                       $48,238     3.92%                 $ 45,755     4.32%
                                                                               =======  =======                  ========   ======

<CAPTION>
                                                                     2005 Compared to 2004               2004 Compared to 2003
                                                                  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) ......................................         $   20,354    $ 4,824  $25,178         $7,714   $ (2,489)  $5,225
 Tax-exempt loans ......................................                450        (63)     387            219        242      461
                                                                 -----------------------------------------------------------------
   Total loans .........................................             20,804      4,761   25,565          7,933     (2,247)   5,686
 Taxable investment securities .........................              3,151        147    3,298          1,207       (824)     383
 Tax-exempt investment securities ......................               (538)        76     (462)          (364)      (366)    (730)
                                                                 -----------------------------------------------------------------
   Total investment securities .........................              2,613        223    2,836            843     (1,190)    (347)
 Interest bearing deposits .............................                (15)       256      241            159         49      208
 Federal funds sold ....................................                (40)       281      241             15         26       41
                                                                 -----------------------------------------------------------------
Total interest earning assets ..........................             23,362      5,521   28,883          8,950     (3,362)   5,588
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) ...................                664      1,682    2,346            280        (87)     193
 Savings deposits ......................................                313        (87)     226            228       (392)    (164)
 Time deposits .........................................              5,178      1,012    6,190          1,101       (505)     596
 Other, including short-term borrowings, long-term debt
    and other interest bearing liabilities .............              2,692      1,424    4,116          1,603        732    2,335
                                                                 -----------------------------------------------------------------
Total interest bearing liabilities .....................              8,847      4,031   12,878         3 ,212       (252)   2,960
                                                                 -----------------------------------------------------------------
Non-interest bearing liabilities:
  Demand deposits ......................................
  Other ................................................
Shareholders' equity ...................................

   Total liabilities and shareholders' equity ..........

Net interest income ....................................         $   14,515    $ 1,490  $16,005     $    5,738   $ (3,110)  $2,628
                                                                 =================================================================
Net yield on interest earning assets(3) ................

Net interest income and yield-tax equivalent basis(4) ..
</TABLE>


                                                                              21
                                  Omega Financial Corporation 2005 Annual Report
<PAGE>

Provision for Loan Losses

      Omega's  provision for loan losses is determined as a result of changes in
the  required  level of the  allowance  for loan loss  reserve.  In 2005,  Omega
provided a provision  for loan losses of $1,202,000 as compared to crediting the
provision  for  $300,000 in 2004.  The majority of the 2005  provision  reflects
management's   assessment  of  one  large  commercial   borrower  who  has  been
experiencing  cash flow  problems.  Omega has  estimated  and provided for known
exposures  for this  $20,000,000  credit,  however,  evaluations  of the  credit
continue.  The ongoing  analysis may cause this estimate to change in the future
and actual losses  resulting  from this credit may differ  materially  from this
initial  estimate.  In 2005,  net  charge-offs  exceeded the  provision for loan
losses by $162,000,  while in 2004 the net charge-offs exceeded the provision by
$3,839,000.  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 2005 and 2004 were .11% and .38%
of average loans outstanding,  respectively.  Non-performing loans as a ratio to
the  allowance  for loan losses were 59.3% at year-end 2005 and 51.8% at the end
of 2004.  The  allowance  for loan  losses as a ratio to net loans was 1.27% and
1.18% at December 31, 2005 and 2004, 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 2005, 2004 and 2003, 21.0%,  19.0% and 16.3%
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 $24,575,000, for a
41.3%,  or  $7,181,000  increase  when  compared to  $17,394,000  for 2004.  The
majority of this increase relates to accounts acquired in the Sun acquisition as
well as growth in trust fees.

      Bank-owned life insurance (BOLI) continues to generate non-interest income
each year as the cash surrender value  increases.  BOLI earnings were $2,299,000
in 2005, as compared to $1,581,000 in 2004.

      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 1.35% for 2005 as compared to 1.38% in 2004.

      In 2005, net gains from investment securities increased by $1,364,000,  or
141.6% to $2,327,000,  which  includes gains of $374,000  related to the sale of
$47,286,000  of investments  acquired from Sun.  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
sheet when the rate risk  analysis  warrants it.  During the first quarter 2005,
Omega paid down  $55,032,000 of Federal Home Loan Bank debt that was acquired in
the Sun merger.  This  resulted in a gain of  $1,043,000  due to favorable  rate
movements  after the merger was closed.  Net losses of $376,000 on other  assets
sold were realized in 2005.

Non-Interest Expense

      In order to  optimize  earnings,  Omega's  management  strives to minimize
operating  expense.  Total  non-interest  expenses were  $61,279,000 for 2005 as
compared to $44,068,000 for 2004,  representing  an increase of $17,211,000,  or
39.1%.  Management  estimates that the Sun acquisition  contributed most of this
increase.  While it is difficult  to compare  full year  results  because of the
merger, Omega's cost savings plan resulted in a $7,843,000,  or 11.39% reduction
in  non-interest  expenses in 2005 compared to pro forma  combined  non-interest
expenses for 2004. As a percentage of average assets,  non-interest  expense was
3.07% for 2005 as compared to 3.22% in 2004.

      Salaries and employee  benefits  increased by 33.5%, or $7,667,000 in 2005
as compared to 2004,  primarily  due to the Sun merger.  Occupancy and equipment
increased by $2,438,000,  or 40.4% driven  primarily by the addition of Sun's 23
branches.  Data  processing  costs were  $2,521,000 for the year  representing a
$683,000 or 37.1%  increase.  Shares tax also  increased  $159,000 to $1,864,000
representing a 9.3% increase. These increases can primarily be attributed to the
former  Sun's  operations,  which were  included in  expenses  during the fourth
quarter only in 2004, and the full year in 2005. Other expenses were $17,086,000
for an  increase  of  $5,888,000,  or  52.3%  once  again  primarily  due to the
additional operations acquired.

      Amortization of intangible  assets totaled $985,000 in 2005 as compared to
$402,000  in 2004.  Omega  booked a core  deposit  intangible  in the  amount of
$7,728,000  and  other  intangibles  of  $2,866,000  as  a  result  of  the  Sun
acquisition.  The core deposit intangible is being amortized over a period of 10
years,  while the other  intangibles  are being  amortized over various  periods
ranging from 1.5 years to 11 years.


22
<PAGE>

Income Taxes

      Income tax expense for 2005 amounted to $6,182,000  compared to $5,322,000
in 2004.  The  effective  tax rate was 21.3% in 2005 versus 23.8% in 2004 due to
Omega's net  operating  loss  carryforwards  as well as  additional  tax credits
available in 2005 versus 2004.  Average  tax-exempt  investments  and loans as a
percentage of average assets were 6.3%,  9.9% and 12.4% in 2005,  2004 and 2003,
respectively.  Tax-exempt income as a percentage of income before tax was 15.9%,
21.1% and 22.6% in 2005,  2004 and 2003,  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 selected earnings ratios for the past three years.

                                         2005           2004         2003
                                        ----------------------------------
Net income..........................     $22,875     $17,021      $17,185
Return on average assets............        1.15%       1.24%        1.50%
Return on average
  tangible assets...................        1.25%       1.26%        1.50%
Return on average equity............        7.13%       8.89%       10.32%
Return on average
  tangible equity...................       15.33%      11.84%       10.32%

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
was 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.

      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 Assets              Average 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 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


                                                                              23
                                  Omega Financial Corporation 2005 Annual Report
<PAGE>

      The merger  with Sun had 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. The table below 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.

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 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>

      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.

      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 of 2004 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 2003,  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  decrease  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.


24
<PAGE>

Provision for Loan Losses

      Omega's  provision  for loan  losses  is  determined  as a  result  of the
adequacy level of the allowance for loan loss reserve.  In 2004,  Omega credited
its  provision  for $300,000 as compared to a 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,
which are key  factors  in  determining  an  adequate  allowance.  In 2004,  net
charge-offs exceeded the provision for loan losses by $2,364,000,  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 .22% 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

      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 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. Management considers multiple factors when selling investment
securities; therefore, income from this activity can fluctuate dramatically from
year to year.

      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  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. The Sun employees  that were retained  accounted for all of
this increase.

      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.  Average  tax-exempt  investments and loans as a percentage of
average  assets  were 9.9% and 12.4% in 2004 and 2003  respectively.  Tax-exempt
income  as a  percentage  of income  before  tax was 21.1% and 22.6% in 2004 and
2003.  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 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
 tangible assets.............        1.26%        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%


                                                                              25
                                  Omega Financial Corporation 2005 Annual Report
<PAGE>

Omega Financial Corporation and Subsidiaries
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, 2005 and 2004, 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, 2005.  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, 2005 and 2004, and the consolidated
results of their  operations and their cash flows for each of the three years in
the period ended December 31, 2005, 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, 2005, 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, 2006, expressed an unqualified opinion thereon.


                                                           /s/ ERNST & YOUNG LLP

Pittsburgh, Pennsylvania
March 15, 2006


26
<PAGE>

Omega Financial Corporation and Subsidiaries
Reports 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, 2005,  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.  Because management's
assessment and our audit were conducted to also meet the reporting  requirements
of Section 112 of the Federal  Deposit  Insurance  Corporation  Improvement  Act
(FDICIA), management's assessment and our audit of Omega Financial Corporations'
internal control over financial reporting included controls over the preparation
of Consolidated Financial Statements for Bank Holding Companies (Form FRY-9C). 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, 2005 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,
2005 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, 2005 and 2004, and the
related consolidated statements of income,  shareholders' equity, and cash flows
for each of the three  years in the  period  ended  December  31,  2005 of Omega
Financial  Corporation  and  our  report  dated  March  15,  2006  expressed  an
unqualified opinion thereon.


                                                           /s/ ERNST & YOUNG LLP

Pittsburgh, Pennsylvania
March 15, 2006


                                                                              27
                                  Omega Financial Corporation 2005 Annual Report
<PAGE>

Omega Financial Corporation and Subsidiaries
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
U.S. 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,  2005,  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.  Based on this assessment,  management
concluded  that,  as of December 31, 2005,  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, an 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/ Donita R. Koval                                /s/ Daniel L. Warfel
Donita R. Koval                                    Daniel L. Warfel
President and                                      Executive Vice President
 Chief Executive Officer                            and Chief Financial Officer

State College, Pennsylvania
March 15, 2006


28
<PAGE>

Omega Financial Corporation and Subsidiaries
Consolidated Balance Sheets
(In thousands, except share data)

<TABLE>
<CAPTION>
                                                           December 31,
                                                     --------------------------
ASSETS                                                  2005           2004
                                                     --------------------------
<S>                                                       <C>            <C>
Cash and due from banks ..........................   $    56,194    $    47,877
Interest bearing deposits with other banks .......         8,908         31,122
Federal funds sold ...............................            --         36,350
Trading securities ...............................           468             --
Investment securities available for sale .........       353,355        327,979
Investment in unconsolidated subsidiary ..........         1,625          1,625
Loans held for sale ..............................           264         22,515
Total portfolio loans ............................     1,214,591      1,305,735
Less: Allowance for loan losses ..................       (15,482)       (15,644)
                                                     --------------------------
Net portfolio loans ..............................     1,199,109      1,290,091
Premises and equipment, net ......................        38,391         35,509
Other real estate owned ..........................           956          3,082
Bank-owned life insurance ........................        75,144         72,845
Investment in limited partnerships ...............         6,612          8,605
Core deposit intangibles .........................         6,729         13,927
Other intangibles ................................         2,529          2,799
Goodwill .........................................       161,004        156,959
Other assets .....................................        28,691         31,286
                                                     --------------------------
TOTAL ASSETS .....................................   $ 1,939,979    $ 2,082,571
                                                     ==========================

LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
  Non-interest bearing ...........................   $   236,683    $   228,408
  Interest bearing ...............................     1,185,847      1,273,674
                                                     --------------------------
Total deposits ...................................     1,422,530      1,502,082
Short-term borrowings ............................        90,153         90,259
ESOP debt ........................................         1,845          2,192
Junior subordinated debentures ...................        56,692         57,190
Long-term debt ...................................        36,322         99,579
Other interest bearing liabilities ...............           882            854
Other liabilities ................................        13,065         14,676
                                                     --------------------------
TOTAL LIABILITIES ................................     1,621,489      1,766,832

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 --
    12,670,323 shares at December 31, 2005;
    12,593,524 shares at December 31, 2004 .......        63,368         62,968
  Outstanding --
    12,599,508 shares at December 31, 2005;
    12,593,524 shares at December 31, 2004
Capital surplus ..................................        99,874         98,370
Retained earnings ................................       159,583        152,249
Accumulated other comprehensive income ...........        (1,226)         3,526
Unearned compensation related to ESOP debt .......        (1,125)        (1,374)
Cost of common stock in treasury:
  70,815 shares at December 31, 2005 .............        (1,984)            --
                                                     --------------------------
TOTAL SHAREHOLDERS' EQUITY .......................       318,490        315,739
                                                     --------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY .......   $ 1,939,979    $ 2,082,571
                                                     ==========================
</TABLE>

The accompanying notes are an integral part of these statements.


                                                                              29
                                  Omega Financial Corporation 2005 Annual Report
<PAGE>

Omega Financial Corporation and Subsidiaries
Consolidated Statements of Income
(In thousands, except share data)

<TABLE>
<CAPTION>
                                                                         Years Ended December 31,
                                                                  --------------------------------------
                                                                     2005          2004         2003
                                                                  --------------------------------------
<S>                                                               <C>           <C>           <C>
INTEREST INCOME:
Interest and fees on loans ....................................   $   78,907    $   53,396    $   47,710
Interest and dividends on investment securities:
  Taxable interest income .....................................        8,645         5,403         5,195
  Tax-exempt interest income ..................................        1,917         2,385         3,115
  Dividend income .............................................          669           630           455
Other interest income .........................................        1,037           557           308
                                                                  --------------------------------------
TOTAL INTEREST INCOME .........................................       91,175        62,371        56,783

INTEREST EXPENSE:
Interest on deposits ..........................................       21,691        12,964        12,339
Interest on short-term borrowings .............................        2,336         1,302           329
Interest on long-term debt and other interest
  bearing liabilities .........................................        5,478         2,400         1,038
                                                                  --------------------------------------
TOTAL INTEREST EXPENSE ........................................       29,505        16,666        13,706
                                                                  --------------------------------------
NET INTEREST INCOME ...........................................       61,670        45,705        43,077
Provision (credit) for loan losses ............................        1,202          (300)          350
                                                                  --------------------------------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES ...........       60,468        46,005        42,727

NON-INTEREST INCOME:
Trust fees ....................................................        6,007         4,027         3,623
Investment and insurance product sales ........................        3,163         1,786         1,141
Service fees on deposit accounts ..............................        9,344         7,076         5,754
Service fees on loans .........................................        1,380         1,547         1,351
Earnings on bank-owned life insurance .........................        2,299         1,581         1,395
Net gains on investment securities available for sale .........        2,327           963         1,127
Gain on the early extinguishment of debt ......................        1,043           570            --
(Loss) gain on sale of loans and other assets .................         (376)         (102)          292
Other .........................................................        4,681         2,958         2,122
                                                                  --------------------------------------
TOTAL NON-INTEREST INCOME .....................................       29,868        20,406        16,805

NON-INTEREST EXPENSE:
Salaries and employee benefits ................................       30,555        22,888        20,091
Net occupancy expense .........................................        4,230         2,790         2,372
Equipment expense .............................................        4,244         3,246         2,777
Data processing service .......................................        2,521         1,839         1,673
Pennsylvania shares tax .......................................        1,864         1,705         1,539
Amortization of intangible assets .............................          985           402            10
Other .........................................................       16,880        11,198         9,059
                                                                  --------------------------------------
TOTAL NON-INTEREST EXPENSE ....................................       61,279        44,068        37,521
                                                                  --------------------------------------
INCOME BEFORE INCOME TAXES ....................................       29,057        22,343        22,011
Income tax expense ............................................        6,182         5,322         4,826
                                                                  --------------------------------------
NET INCOME ....................................................       22,875        17,021        17,185
                                                                  ======================================
EARNINGS PER SHARE
Basic .........................................................   $     1.82    $     1.79    $     2.07
Diluted .......................................................         1.81          1.78          2.01
Weighted average shares and equivalents:
Basic .........................................................       12,601         9,484         8,169
Diluted .......................................................       12,645         9,570         8,524
</TABLE>

The accompanying notes are an integral part of these statements.


30
<PAGE>

Omega Financial Corporation and Subsidiaries
Consolidated Statements of Shareholders' Equity
(In thousands, except share data)

<TABLE>
<CAPTION>
                                                                Periods Ended December 31, 2003, 2004, 2005
                                               ------------------------------------------------------------------------------
                                                                                                                 Accumulated
                                                              Unearned                                           Other Com-
                                               Preferred       Compen-     Common       Capital     Retained     prehensive
                                                 Stock         sation       Stock       Surplus     Earnings       Income
                                               ------------------------------------------------------------------------------
<S>                                            <C>            <C>          <C>          <C>         <C>          <C>
Balance at December 31, 2002................   $   5,000      $ (1,875)    $48,035      $10,529     $138,821     $     7,243
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..................
Common dividends declared--$1.17 per share..                                                          (9,582)
Cash dividends, preferred--$1.35 per share..                                                            (297)
Amortization of unearned compensation.......                       251
Tax benefit from employee stock options.....                                                             251
Tax benefit from preferred stock dividends
 paid to ESOP...............................                                                              52
Purchase of treasury stock--
 82,247 shares..............................
Exercised employee stock options--
 95,137 shares..............................                                   476        1,913
                                               ------------------------------------------------------------------------------
Balance at December 31, 2003................          --        (1,624)     50,242       15,711      146,430           5,209
Comprehensive income:
 Net income.................................                                                          17,021
 Change in unrealized securities gains,
 net........................................                                                                          (1,683)
Total comprehensive income..................
Common dividends declared--                                                                          (11,388)
 $1.20 per share............................
Amortization of unearned compensation.......                       250
Tax benefit from employee stock options.....                                                             139
Tax benefit from dividends paid to ESOP
 on unallocated common stock................                                                              47
Issuance of 2,457,571 shares for acquisition
 of Sun Bancorp, Inc........................                                12,288       78,817
Value of options assumed in Sun Acquisition.                                              1,853
Purchase of treasury stock--73,212 shares...
Exercised employee stock options--
 87,585 shares..............................                                   438        1,989
                                               ------------------------------------------------------------------------------
Balance at December 31, 2004................          --        (1,374)     62,968       98,370      152,249           3,526
Comprehensive income:
 Net income.................................                                                          22,875
 Change in unrealized securities gains, net.                                                                          (4,752)
Total comprehensive income..................
Common dividends declared--
 $0.62 per share............................                                                         (15,651)
Amortization of unearned compensation.......                       249
Tax benefit from employee stock options.....                                                              70
Tax benefit from dividends paid to ESOP on
 unallocated common stock...................                                                              40
Purchase of treasury stock--67,069 shares...
Employer stock held in Rabbi Trusts--
 3,746 shares...............................
Exercised employee stock options--
 80,011 shares..............................                                   400        1,504
                                               ------------------------------------------------------------------------------
Balance at December 31, 2005................   $      --      $ (1,125)    $63,368      $99,874     $159,583     $    (1,226)
                                               ==============================================================================
<CAPTION>
                                               --------------------
                                               Cost of
                                                Common
                                               Stock In
                                               Treasury     Total
                                               --------------------
<S>                                            <C>         <C>
Balance at December 31, 2002................   $(45,643)   $162,110
Conversion of preferred to common stock.....                     --
Comprehensive income:
Net income..................................
Change in unrealized securities gains, net..
Total comprehensive income..................                 15,151
Common dividends declared--$1.17 per share..                 (9,582)
Cash dividends, preferred--$1.35 per share..                   (297)
Amortization of unearned compensation.......                    251
Tax benefit from employee stock options.....                    251
Tax benefit from preferred stock dividends
 paid to ESOP...............................                     52
Purchase of treasury stock--
 82,247 shares..............................     (2,886)     (2,886)
Exercised employee stock options--
 95,137 shares..............................                  2,389
                                               --------------------
Balance at December 31, 2003................    (48,529)    167,439
Comprehensive income:
 Net income.................................
 Change in unrealized securities gains,
 net........................................
Total comprehensive income..................                 15,338
Common dividends declared--                                 (11,388)
 $1.20 per share............................
Amortization of unearned compensation.......                    250
Tax benefit from employee stock options.....                    139
Tax benefit from dividends paid to ESOP
 on unallocated common stock................                     47
Issuance of 2,457,571 shares for acquisition
 of Sun Bancorp, Inc........................     51,017     142,122
Value of options assumed in Sun Acquisition.                  1,853
Purchase of treasury stock--73,212 shares...     (2,488)     (2,488)
Exercised employee stock options--
 87,585 shares..............................                  2,427
                                               --------------------
Balance at December 31, 2004................         --     315,739
Comprehensive income:
 Net income.................................
 Change in unrealized securities gains, net.
Total comprehensive income..................                 18,123
Common dividends declared--
 $0.62 per share............................                (15,651)
Amortization of unearned compensation.......                    249
Tax benefit from employee stock options.....                     70
Tax benefit from dividends paid to ESOP on
 unallocated common stock...................                     40
Purchase of treasury stock--67,069 shares...     (1,864)     (1,864)
Employer stock held in Rabbi Trusts--
 3,746 shares...............................       (120)       (120)
Exercised employee stock options--
 80,011 shares..............................                  1,904
                                               --------------------
Balance at December 31, 2005................   $ (1,984)   $318,490
                                               ====================
</TABLE>

The accompanying notes are an integral part of these statements.


                                                                              31
                                  Omega Financial Corporation 2005 Annual Report
<PAGE>

Omega Financial Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(In thousands)

<TABLE>
<CAPTION>
                                                                            Years Ended December 31,
                                                                       -----------------------------------
                                                                         2005          2004         2003
                                                                       -----------------------------------
<S>                                                                    <C>          <C>          <C>
Cash flows from operating activities:
 Net income.........................................................   $  22,875    $  17,021    $  17,185
 Adjustments to reconcile net income to net cash provided by
 operating activities:
  Depreciation and amortization.....................................       4,360        4,463        4,891
  Provision (credit) for loan losses and off-balance sheet reserve..       1,171         (300)         350
  Gain on sale of investment securities.............................      (2,327)        (963)      (1,127)
  Gain on early extinguishment of debt..............................      (1,043)        (570)          --
  Non-monetary gift.................................................          45           43           48
  (Gain) loss on sale of fixed assets and other property owned......         (13)         120          (18)
  (Gain) loss on sale of loans and leases...........................         415          (18)        (274)
  Provision for deferred income tax.................................       2,022        2,315         (397)
  Increase in cash surrender value of bank owned life insurance.....      (2,299)      (1,582)      (1,395)
  (Increase) decrease in interest receivable and other assets.......       5,321         (217)         146
  Increase (decrease) in interest payable...........................          54        2,050         (192)
  Increase (decrease) in taxes payable..............................         411        1,250         (513)
  Amortization of deferred net loan (fees) costs....................        (307)        (380)        (682)
  Deferral of net loan fees.........................................         268          652          665
  Decrease in accounts payable and accrued expenses.................      (2,223)      (6,429)      (1,610)
                                                                       -----------------------------------
   Total adjustments................................................       5,855          434         (108)
                                                                       -----------------------------------
Net cash provided by operating activities...........................      28,730       17,455       17,077
Cash flows from investing activities:
 Investment securities available for sale:
  Proceeds from sales...............................................      60,854      129,742        3,404
  Proceeds from maturities..........................................      54,507      105,326      104,106
  Cash used for purchases...........................................    (147,487)    (112,733)    (100,432)
 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...........      22,214      (18,118)      (1,925)
 Decrease (increase) in loans and leases............................      82,387       51,982      (21,790)
 Gross proceeds from sale of loans and leases.......................      29,905       67,700       12,923
 (Investment) sale of investments in limited partnership............       1,004         (205)          --
 Capital expenditures...............................................      (6,288)      (3,213)      (1,907)
 Sale of fixed assets and other property owned......................       2,329        8,945           42
 Net change in federal funds sold...................................      36,350      (18,500)      16,050
 Purchase of bank-owned life insurance..............................          --           --       (4,000)
                                                                       -----------------------------------
Net cash provided by (used in) investing activities.................     135,775      186,568        6,471
</TABLE>

The accompanying notes are an integral part of these statements.      (continued
                                                                   on next page)


32
<PAGE>

Omega Financial Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(In thousands)

<TABLE>
<CAPTION>
                                                                            Years Ended December 31,
                                                                       -----------------------------------
                                                                         2005          2004         2003
                                                                       -----------------------------------
<S>                                                                    <C>          <C>          <C>
Cash flows from financing activities:
 Net change in demand deposits, checking with interest and savings .     (64,722)     (31,450)      62,953
 Net change in time deposits .......................................     (13,420)     (10,493)     (74,628)
 Increase (decrease) in short-term borrowings, net .................      (5,206)      14,452      (13,189)
 Issuance of junior subordinated debt ..............................          --       37,114           --
 Issuance of long-term debt ........................................      10,000       17,000       11,500
 Principal payment on long-term debt ...............................     (67,257)    (198,728)      (1,137)
 Net change in other interest bearing liabilities ..................          28           41           51
 Payment of fee to terminate swap arrangement ......................          --       (5,053)          --
 Dividends paid ....................................................     (15,651)     (11,388)     (12,230)
 Issuance of common stock ..........................................       1,904        2,427        2,389
 Acquisition of treasury stock .....................................      (1,864)      (2,488)      (2,886)
                                                                       -----------------------------------
Net cash used in financing activities ..............................    (156,188)    (188,566)     (27,177)
                                                                       -----------------------------------
Net increase (decrease) in cash and cash equivalents ...............   $   8,317    $  15,457    $  (3,629)
                                                                       ===================================
Cash and cash equivalents at beginning of period ...................   $  47,877    $  32,420    $  36,049
Cash and cash equivalents at end of period .........................      56,194       47,877       32,420
                                                                       -----------------------------------
Net increase (decrease) in cash and cash equivalents ...............   $   8,317    $  15,457    $  (3,629)
                                                                       ===================================
Interest paid ......................................................   $  29,451    $  16,505    $  13,898
Income taxes paid ..................................................         448        3,662        5,735
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 .....................         176          411          885
 Transfers of bank property ........................................          45        2,277           --
</TABLE>

The accompanying notes are an integral part of these statements.


                                                                              33
                                  Omega Financial Corporation 2005 Annual Report
<PAGE>

Omega Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(Years Ended December 31, 2005, 2004 and 2003)

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,  health 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,  in 2004, a full
service  insurance agency was 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 to 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  consolidates 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, 2005 or December 31, 2004.

      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 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.)


34
<PAGE>

      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.

      Securities classified as trading, consists of assets held in Rabbi Trusts,
including U.S.  treasury notes,  mutual funds and cash equivalents are stated at
market value. Realized gains and losses and unrealized changes in fair value are
reported in earnings.

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 by  management  as a commercial  loan over
$100,000 and classified as doubtful or substandard and in non-accrual  status or
a troubled debt  restructuring.  Impairment is recognized to the extent that the
fair value of the collateral of the impaired loan is less than the loan balance.
The  difference  between  the  collateral's  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  value on an
aggregate  basis.  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  expense on the income  statement.  Gains or losses
not  previously  recognized  resulting  from the sale of OREO are  recognized in
non-interest  income on the date of sale.  At December  31,  2005 and 2004,  the
carrying  value of other real estate owned and held for  investment was $956,000
and $3,082,000, respectively.

Investments in Limited Partnerships

      Omega is a limited partner in eight partnerships at December 31, 2005 that
provide  low income  elderly  housing in Omega's  geographic  market  area.  The
carrying value of Omega's investments in limited  partnerships was $5,440,000 at
December 31, 2005 and  $6,282,000 at December 31, 2004. 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
$929,000 in 2005, and $166,000 in 2004.

      Omega is also a partner in a  partnership  at  December  31,  2005 and two
partnerships at December 31, 2004 that provide office space in areas  designated
as empowerment  zones by the  Commonwealth  of  Pennsylvania.  The  partnerships
provided  Pennsylvania  Shares Tax credits to the  investor.  Carrying  value of
Omega's  investment in the  partnerships was $1,172,000 at December 31, 2005 and
$2,323,000 at December 31, 2004. 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 the partnership investment totaled $62,000 in 2005 and $16,000 in 2004.


                                                                              35
                                  Omega Financial Corporation 2005 Annual Report
<PAGE>

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 at the reporting segment level. Goodwill
impairment  is measured by  comparing  the implied fair value of goodwill to its
carrying value.

      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.  Impairment of intangible assets is measured as the difference
between present value of future cash flows and its carrying value.

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 $189,000,  $897,000 and
$746,000 in 2005, 2004 and 2003,  respectively  and is included in the pro forma
net income reported below (in thousands, except per share data):

                                           2005        2004       2003
                                         -------------------------------
Net income
 As reported..........................   $ 22,875    $ 17,021   $ 17,185
 Pro forma............................     22,687      16,124     16,439
Basic earnings per share
 As reported..........................   $   1.82    $   1.79   $   2.07
 Pro forma............................       1.80        1.70       1.98
Diluted earnings per share
 As reported..........................   $   1.81    $   1.78   $   2.01
 Pro forma............................       1.79        1.68       1.92

      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.

      On January 1, 2006, Omega adopted SFAS 123R which  establishes  accounting
requirements for share-based compensation. (See Note 2.)

Advertising Costs

      Advertising costs are generally expensed as incurred.

2. RECENT ACCOUNTING PRONOUNCEMENTS

      In December 2004, the FASB issued SFAS 123 (revised  2004),  "Share- Based
Payments"  (SFAS 123R),  an amendment to 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  became  effective
January 1, 2006 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  adopted SFAS 123R on January 1, 2006, on a modified
prospective basis. At December 31, 2005, all equity awards previously granted by
Omega were fully vested,  therefore, the actual financial impact of the adoption
of SFAS 123R will depend on the type,  amount,  timing and vesting provisions of
the  share-based  compensation  granted in the  future.  Management  expects the
impact will  approximate  2003 and 2004 amounts  disclosed in pro forma earnings
and earnings per share presented in Note 1.

      In May  2005,  the FASB  issued  FAS 154,  "Accounting  Changes  and Error
Corrections," which changes the accounting for and reporting of a change in


36
<PAGE>

accounting  principle.  This  statement  applies  to all  voluntary  changes  in
accounting principle and changes required by an accounting  pronouncement in the
event that the pronouncement  does not include specific  transition  provisions.
This statement  requires  retrospective  application  to prior period  financial
statements  of changes in accounting  principles,  unless it is  impractical  to
determine either the  period-specific  or cumulative  effects of the change. FAS
154 is effective for  accounting  changes made in fiscal years  beginning  after
December  15,  2005.  The  adoption of this  standard is not  expected to have a
material impact on the financial condition or results of operations of Omega.

      In November 2005,  the FASB issued FASB Staff  Position (FSP) 115-1,  "The
Meaning  of  Other-than-Temporary  Impairment  and Its  Application  to  Certain
Investments." This FSP provides  additional  guidance on when an investment in a
debt or equity security  should be considered  impaired and when that impairment
should be considered Other-than-Temporary,  even if the decision to sell has not
been made. This FSP also requires certain  disclosures  about unrealized  losses
that have not been recognized as Other-than-Temporary impairments. Omega adopted
this guidance  during 2005 in performing its evaluation of unrealized  losses on
investment securities at December 31, 2005.

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  and  northeastern   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,  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 and issued 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  that  date.   The  purchase  price   allocation   resulted  in  recording
$161,000,000 in goodwill.

      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 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

      The pro forma results include  amortization  of fair value  adjustments on
loans,  deposits  and  debt,  amortization  of  newly  created  intangibles  and
post-merger  acquisition  related  charges.  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
$11,156,000 and $6,801,000 as of December 31, 2005 and 2004, respectively.


                                                                              37
                                  Omega Financial Corporation 2005 Annual Report
<PAGE>

5. INVESTMENT SECURITIES (In thousands)

<TABLE>
<CAPTION>
Securities classified as Available for Sale                                   December 31, 2005
                                                       ---------------------------------------------------------------
                                                                                                 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 ..................................   $   74,885   $   73,986      2.90%      $       --   $     (899)
  After one year but within five years .............      138,681      136,137      3.52               --       (2,544)
  After five years but within ten years ............           --           --        --               --           --
  After ten years ..................................           --           --        --               --           --
Obligations of state and political subdivisions
  Within one year ..................................       32,889       32,861      3.43               56          (84)
  After one year but within five years .............       23,351       22,828      2.35                1         (524)
  After five years but within ten years ............           50           50      5.30               --           --
  After ten years
Corporate and other securities
  Within one year ..................................        1,002          996      3.49                1           (7)
  After one year but within five years .............        2,126        2,095      4.54               --          (31)
  After five years but within ten years ............          100           98      4.68               --           (2)
  After ten years ..................................          192          199      5.87                7           --
Mortgage-backed securities
  Within one year ..................................            7            7      4.43               --           --
  After one year but within five years .............       53,175       51,983      4.31                2       (1,194)
  After five years but within ten years ............        2,794        2,758      4.67                4          (40)
  After ten years ..................................       14,016       13,894      4.46               64         (186)
Common stock .......................................       11,972       15,463       N/M            3,507          (16)
                                                       ---------------------------------------------------------------
Total ..............................................   $  355,240   $  353,355      3.47%      $    3,642   $   (5,527)
                                                       ===============================================================
</TABLE>

<TABLE>
<CAPTION>
Securities classified as Available for Sale                                   December 31, 2004
                                                       ---------------------------------------------------------------
                                                                                                 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>


38
<PAGE>

<TABLE>
<CAPTION>
Securities classified as Available for Sale                                   December 31, 2003
                                                       ---------------------------------------------------------------
                                                                                                 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>

N/M = Not meaningful

      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 3.71%,  3.52% and 3.79% as of
December 31, 2005,  2004 and 2003,  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
$235,162,000, $229,305,000 and $102,458,000 at December 31, 2005, 2004 and 2003,
respectively.

      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,
                                    ------------------------------
                                      2005       2004       2003
                                    ------------------------------
Gross proceeds from
 securities transactions.........   $115,361   $234,152   $107,510
Securities available for sale:
 Realized gains..................      2,371        963      1,127
 Realized losses.................         44         --         --

      Unrealized  losses  recognized  in 2005 were the  result  of  management's
continued  restructuring of the fixed income investment  portfolio acquired from
Sun. As part of this restructuring, investment securities with a total amortized
cost of $48,584,000  were  liquidated in 2005,  providing  gains of $439,000 and
losses of $44,000.  The average  remaining  maturity of the securities  sold was
12.5  years,  which  exceeds  the two to  five-year  maturity  period that Omega
considers acceptable for its current interest rate risk position.


                                                                              39
                                  Omega Financial Corporation 2005 Annual Report
<PAGE>

      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, 2005 and 2004 (in thousands):

<TABLE>
<CAPTION>
                                                    Less Than 12 Months    12 Months or More
                                                    -----------------------------------------
                                                      Fair    Unrealized    Fair   Unrealized
December 31, 2005                                    Value      Losses     Value     Losses
                                                    -----------------------------------------
<S>                                                 <C>        <C>        <C>        <C>
U.S. Treasury securities and obligations of other
 U.S. Government agencies and corporations ......   $ 88,226   $    894   $121,897   $  2,549
Obligations of state and political subdivisions .     13,923        148     19,300        460
Corporate and other securities ..................        969         10      1,320         30
Mortgage-backed securities ......................     47,865      1,012     18,482        408
                                                    -----------------------------------------
Debt securities .................................    150,983      2,064    160,999      3,447
Common stock ....................................        147         16         --         --
                                                    -----------------------------------------
Total temporarily impaired securities ...........   $151,130   $  2,080   $160,999   $  3,447
                                                    =========================================

<CAPTION>
                                                    Less Than 12 Months    12 Months or More
                                                    -----------------------------------------
                                                      Fair    Unrealized    Fair   Unrealized
December 31, 2004                                    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 at December 31, 2005 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  28  investments  in  U.S.   Government  agency  debt  securities,   31
investments in obligations of state and municipal  subdivisions,  10 investments
in corporate securities and 24 investments in mortgage-backed securities.  These
securities have maturity or pre-refund  dates ranging from June 2006 to February
2028 and a weighted  average life to maturity of 1.8 years.  The unrealized loss
position for each security ranges from .01% to 5.72% of the securities amortized
cost as of December 31, 2005.  Investments with unrealized  losses for 12 months
or longer includes 70 investments in U.S. Government agency debt securities,  46
investments in obligations of state and municipal subdivisions, 8 investments in
corporate securities,  and 11 investments in mortgage-backed  securities.  These
securities have maturity or pre-refund  dates ranging from May 2006 to September
2022 and a weighted  average life to maturity of 1.4 years.  The unrealized loss
position for each security ranges from .15% to 5.67% of the securities amortized
cost as of December 31, 2005.

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,
                                         -----------------------------------------------------------------------
                                            2005           2004           2003            2002           2001
                                         -----------------------------------------------------------------------
<S>                                      <C>            <C>            <C>            <C>            <C>
Commercial, financial and agricultural   $   271,162    $   271,650    $   111,471    $   116,833    $   123,938
Real estate--commercial ..............       465,724        501,394        338,703        293,010        262,613
Real estate--construction ............        22,000         25,301         17,598         36,690         20,736
Real estate--mortgage ................       242,606        277,208        197,656        195,180        194,422
Home equity ..........................       137,496        133,077         90,612         92,500         92,271
Personal .............................        63,687        107,859         32,059         45,445         65,871
Lease financing ......................        14,045         13,387             46            172            544
Unearned Interest ....................        (1,865)        (1,626)            (1)           (11)           (41)
                                         -----------------------------------------------------------------------
 Total ...............................   $ 1,214,855    $ 1,328,250    $   788,144    $   779,819    $   760,354
                                         -----------------------------------------------------------------------
Non-accrual loans ....................   $     6,562    $     5,220    $     2,588    $     3,125    $     2,327
</TABLE>

      Interest  income not recorded on non-accrual  loans in 2005, 2004 and 2003
was $433,000,  $256,000 and $225,000,  respectively.  Gross interest income that
would  have  been  recorded  on  non-accrual  loans had  these  loans  been in a
performing  status was  $601,000  in 2005,  of which  $168,000  was  included in
interest income for the year ended December 31, 2005.

      The aggregate  amount of demand  deposits that have been  reclassified  as
loan  balances  at  December  31,  2005 and 2004 are  $1,782,000  and  $782,000,
respectively. Included in the amounts above are $2,325,000 and $2,365,000 in net
deferred loan fees as of December 31, 2005 and 2004, respectively.

      Omega has a diversified loan portfolio,  with 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.


40
<PAGE>

Pledged Loans

      As of December  31,  2005,  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, 2005 was  $6,422,000  with a collateral
value of $5,458,000.

      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, 2005, the amount of loans
included in Qualifying  Collateral was  $314,151,000  for a collateral  value of
$258,120,000.

7. ALLOWANCE FOR LOAN LOSSES

      Omega  maintains  an  allowance  for loan  losses and for  lending-related
commitments to provide for the risk of loss inherent in the process of extending
credit.   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. At December 31, 2005,  $1,500,000
of the loan loss  reserve was  specifically  allocated  to one large  commercial
borrower who is currently in performing  status but has been  experiencing  cash
flow  problems.  Omega has estimated  and provided for known  exposures for this
$20,000,000  credit,  however,  evaluations of the credit continue.  The ongoing
analysis  may cause this  estimate  to change in the  future  and actual  losses
resulting from this credit may differ materially from this initial estimate.

      Omega   currently  has  fourteen   credit   relationships   with  exposure
individually  greater  then  $10,000,000.  The total of loans to these  fourteen
commercial customers at December 31, 2005 was $205,000,000.  These loans are all
secured with real estate except for the $20,000,000 loan mentioned above that is
secured with  accounts  receivable  and  inventory.  Only two of the  facilities
required an allocation of the allowance for loan losses at year end. In addition
to  the  $20,000,000  credit,  another  facility  for  $16,000,000  required  an
allocation of $300,000.

      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 2004 Omega
took a charge-off of  $1,006,000  (consisting  of $681,000 of a commercial  real
estate  charge-off  and  $325,000  of  commercial   business  charge-off  for  a
commercial loan which was subject to a bankruptcy liquidation):

      A summary of the  transactions  in the  allowance  for loan losses for the
last five years follows (in thousands):

<TABLE>
<CAPTION>
                                                                                      Years Ended December 31,
                                                                      ---------------------------------------------------------
                                                                        2005        2004         2003        2002        2001
                                                                      ---------------------------------------------------------
<S>                                                                   <C>         <C>          <C>         <C>         <C>
Balance of allowance--beginning of period .........................   $ 15,644    $ 10,569     $ 11,052    $ 11,224    $ 11,622
Loans charged off:
 Commercial, financial and agricultural ...........................        368         672          134          25         188
 Real estate--commercial ..........................................        165         698          176         219         403
 Real estate--mortgage ............................................        314         907          126          88          40
 Personal and lease financing loans ...............................        889       1,445          561         602         595
                                                                      ---------------------------------------------------------
  Total charge-offs ...............................................      1,736       3,722          997         934       1,226
Recoveries of loans previously charged off:
 Commercial, financial and agricultural ...........................         78           8           11          57          28
 Real estate--commercial ..........................................         10          17            3           7         236
 Real estate--mortgage ............................................         48           6           60           2           3
 Personal and lease financing loans ...............................        236         152           90          66          61
                                                                      ---------------------------------------------------------
  Total recoveries ................................................        372         183          164         132         328
                                                                      ---------------------------------------------------------
Net charge-offs ...................................................      1,364       3,539          833         802         898
Provision (credit) for loan losses ................................      1,202        (300)         350         630         500
Allowance acquired through bank purchase ..........................         --       9,505           --          --          --
Reclassification of off balance sheet liability ...................         --        (591)          --          --          --
                                                                      ---------------------------------------------------------
Balance of allowance--end of period ...............................   $ 15,482    $ 15,644     $ 10,569    $ 11,052    $ 11,224
                                                                      =========================================================
Ratio of net charge-offs during period to average loans outstanding       0.11%       0.38%        0.11%       0.10%       0.12%
                                                                      =========================================================
</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,
                                                                   ------------------------------------
                                                                      2005         2004         2003
                                                                   ------------------------------------
<S>                                                                <C>          <C>          <C>
Impaired loans:
   Recorded investment at period end ...........................   $5,676,000   $2,475,000   $  729,000
   Impaired loan balance for which there is a related allowance     5,676,000    2,475,000      729,000
   Amount of allowance for impaired loans ......................    1,217,000      755,000      226,000
   Impaired loan balance for which there is no related allowance           --           --           --
   Average recorded investment .................................    4,933,000    1,597,000    1,348,000
Interest income recognized (on a cash basis) ...................   $  138,000   $   55,000   $   12,000
</TABLE>


                                                                              41
                                  Omega Financial Corporation 2005 Annual Report
<PAGE>

      The $20,000,000 commercial loan discussed above is currently classified as
substandard,  however,  the borrower is current.  Therefore,  this loan does not
meet the Company's definition of an impaired loan as of December 31, 2005 and is
not included in the impaired loan summary above.

8. BANK-OWNED LIFE INSURANCE

      Omega holds bank-owned life insurance (BOLI),  with a cash surrender value
of $75,144,000 and $72,845,000 at December 31, 2005 and 2004, respectively.  The
cash  surrender  value on the  BOLI  increased  by  $2,299,000,  $1,581,000  and
$1,395,000  in 2005,  2004 and 2003,  respectively,  from  earnings  recorded as
non-interest income. In 2004, an increase in cash surrender value of $34,130,000
was  attributable  to the  bank-owned  life  insurance  acquired  with Sun.  The
policies owned by Omega are with various insurance companies.  The credit rating
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        2005         2004
                                     ----------------------------------------
Land .............................            --     $   5,921    $     5,905
Premises and leasehold
   improvements ..................    5-40 years        36,191         32,810
Furniture, computer software
   and equipment .................    3-20 years        28,999         25,513
Construction in progress .........            --           508          1,606
                                                     ------------------------
                                                        71,619         65,834
Less: Accumulated
   depreciation ..................                     (33,228)       (30,325)
                                                     ------------------------
                                                     $  38,391    $    35,509
                                                     ========================

      Depreciation  expense on premises and equipment  charged to operations was
$3,340,000 in 2005, $2,667,000 in 2004 and $2,278,000 in 2003.

10. TIME DEPOSITS

      Time deposits consist of the following (in thousands):

                                                         December 31,
                                                     -------------------
                                                       2005      2004
                                                     -------------------
Time deposits $100,000 or greater...............     $ 94,948   $103,472
Other time deposits.............................      467,124    473,430
                                                     -------------------
                                                     $562,072   $576,902
                                                     ===================

      Aggregate  amount of scheduled  maturities of time deposits as of December
31, 2005 include the following (in thousands):

                                                        Time Deposits
                                                     -------------------
                                                     $100,000
                                                        or
Maturing in:                                         Greater     Other
                                                     -------------------
2006 ..............................................  $ 48,795   $244,161
2007 ..............................................    26,496    138,784
2008 ..............................................     6,426     33,506
2009 ..............................................     2,643     20,327
2010 ..............................................    10,448     28,732
Later .............................................       140      1,614
                                                     -------------------
                                                     $ 94,948   $467,124
                                                     ===================

11. BORROWINGS

      Borrowings consist of the following (in thousands):

                                                         December 31,
                                                     -------------------
                                                       2005      2004
                                                     -------------------
Short-Term Borrowings:
Retail repurchase agreements ......................  $ 65,553   $ 63,541
Overnight borrowing with Federal Home Loan
 Bank, at fixed rate of 4.20% .....................    14,500         --
Note payable to Federal Home Loan Bank,
 with fixed rate of 2.08% .........................        --     10,000
Demand note, payable to another financial
 institution with variable interest rate payable at
 one month LIBOR plus 175 basis points ............        --     10,000
Overnight borrowing with another financial
 institution with a fixed interest rate of 4.38% ..     5,000         --
Note payable to another financial institution
 with a fixed interest rate of 1.90% ..............        --      4,700
Note payable to another financial institution
 with a fixed interest rate of 2.42% ..............     3,600         --
Note payable to Federal Home Loan Bank,
 with variable rate payable at one year
 CMT plus 72 basis points .........................        --      2,000
Note payable to Federal Home Loan Bank,
 with fixed rate of 2.65% .........................     1,500         --
Note payable to GMAC, with fixed interest
 rate of 0% .......................................        --         18
                                                     -------------------
  Total Short-Term Borrowings .....................  $ 90,153   $ 90,259
                                                     ===================
Long-Term Debt:
Notes payable to Federal Home Loan Bank, with
 fixed rates between 2.65% and 6.80% ..............  $ 32,732   $ 25,373
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% ..........     3,590      7,053
                                                     -------------------
  Total Long-Term Borrowings ......................  $ 36,322   $ 99,579
                                                     ===================
ESOP Debt Guarantee ...............................  $  1,845   $  2,192

(a)   Borrowings were held at a fixed rate but could have been converted, at the
      FHLB's option, to adjustable-rate loans. If converted,  the interest rates
      would have been at three month LIBOR plus between 11 and 14 basis  points.
      In  March  2005  however,   Omega   extinguished  this  indebtedness  thus
      completing  its  systematic  program of  reducing  the  leverage  of Sun's
      balance sheet acquired through the acquisition.  The final  extinguishment
      resulted in a $1,043,000 gain.


42
<PAGE>

      Omega has  repurchase  agreements  with several of its  depositors,  under
which customers' funds are invested daily into an interest bearing account.  The
Corporation carries these funds as short-term debt. It is Omega's policy to have
repurchase agreements  collateralized 100% with 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 to the Federal Home Loan Bank as of
December  31, 2005 in the amount of  $1,500,000  matured in January 2005 and was
renewed with a term of five years.

      Long-term  notes  payable to the  Federal  Home Loan Bank have  maturities
ranging from 2007 through 2019.

      Omega's current total  borrowing  capacity with the Federal Home Loan Bank
of Pittsburgh is $103,762,000,  with $48,732,000  drawn as of December 31, 2005.
With additional FHLB capital stock purchases,  Omega's borrowing  capacity could
reach approximately $474,045,000. 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
$52,500,000  as of December  31, 2005 and  $25,000,000  as of December 31, 2004,
with interest payable at  approximately  the daily federal funds rate. There was
$5,000,000  drawn  against  these credit  facilities as of December 31, 2005 and
none as of December 31, 2004.

      In addition to the overnight lines discussed  above,  Omega  established a
$10,000,000 line of credit with another  financial  institution  during 2005 for
liquidity purposes. To secure this line, Omega paid an upfront commitment fee of
$10,000 and has agreed to pay an additional  quarterly fee of 15 basis points on
the unused  portion of the line.  Interest  is payable at the 30-day  LIBOR rate
plus a spread of 100 basis  points.  As of  December  31, 2005 Omega had nothing
outstanding under this credit facility.

      Omega also has securities and 1-4 family mortgages  pledged at the Federal
Reserve Bank Discount Window in the amount of $25,260,000. These overnight lines
are  typically  only  utilized  as a last  resort  as it is  normally  priced at
approximately 100 basis points over the Federal Funds rate.

      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 19.)

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%.


                                                                              43
                                  Omega Financial Corporation 2005 Annual Report
<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, 2005:

                                              As of December 31, 2005
                                          -------------------------------
                                          Capital Trust I     Sun Trust I
                                          -------------------------------
Trust preferred securities ..........     $       36,000     $   16,500
Common securities ...................              1,114            511
Junior subordinated debt ............             37,114         19,578
Stated maturity date ................         10/18/2034       2/22/2031
Optional redemption date ............         10/18/2009       Annually
                                                              beginning
                                                              2/22/2011
                                                              At various
                                                              redemption
                                                                prices
Rate ................................      5.98% until            8.64%
                                          October 2009,
                                            then 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,  signs,  automatic  teller  machines  (ATM),  ATM sites and  printing
equipment. The majority of the branch location and ATM site leases are renewable
at the Corporation's option. In addition,  future rental payments on many of the
branch and ATM site 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
non-cancellable  lease terms in excess of one year as of  December  31, 2005 (in
thousands):

Years Ending December 31,
2006.................................     $      572
2007.................................            448
2008.................................            324
2009.................................            291
2010.................................            152
Later years..........................            419
                                          ----------
Total minimum payments required......     $    2,206
                                          ==========

      Rental  expense  charged  to  operations,  net  of  sublease  income,  was
$292,000,  $277,000 and  $218,000 in 2005,  2004 and 2003,  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.  Omega  has  finite-lived  intangible  assets
capitalized  on  its  balance  sheet   pertaining  to  core  deposit,   customer
relationships and trade names. In 2004, Omega recorded preliminary  estimates of
fair values of assets acquired,  including core deposit intangibles and goodwill
of $14,368,000 and $156,959,000,  respectively.  Omega revised its determination
of the value of the core deposit  intangible in 2005. This revised valuation was
lower  than  originally  estimated  by  $6,483,000;  accordingly,  the  value of
goodwill was increased by $4,214,000.  Additionally,  other purchase  accounting
adjustments recorded during 2005 resulted in a decrease to goodwill of $169,000.
Goodwill carried on the balance sheet as of December 31, 2005 was  $161,004,000.
Impairment  testing for goodwill is completed on at least an annual  basis.

      The original average weighted life of the finite-lived  intangibles assets
was ten years,  and the remaining  average weighted life as of December 31, 2005
was nine 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.

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

                                                         2005      2004
                                                       ------------------
Core deposit intangible:
 Gross carrying amount.............................    $  7,885   $14,368
 Less: Accumulated amortization....................       1,156       441
                                                       ------------------
 Net carrying amount...............................       6,729    13,927
Customer relationship intangibles:
 Gross carrying amount.............................       2,700     2,700
 Less: Accumulated amortization....................         307        61
                                                       ------------------
 Net carrying amount...............................       2,393     2,639
Trade name intangible with finite life:
 Gross carrying amount.............................          36        36
 Less: Accumulated amortization....................          30         6
                                                       ------------------
 Net carrying amount...............................           6        30
Total finite-lived intangibles:
 Gross carrying amount.............................      10,621    17,104
 Less: Accumulated amortization....................       1,493       508
                                                       ------------------
 Net carrying amount...............................       9,128    16,596
Trade name intangible with infinite life:
 Gross carrying amount.............................    $    130   $   130

      Amortization expense for core deposits and other intangibles recognized in
non-interest  expense  included  $985,000,  $402,000 and $10,000 for years ended
December 31, 2005, 2004 and 2003, respectively.  Intangible amortization expense
projected  for the  succeeding  five years  beginning in 2006 is estimated to be
$1,017,000 per year.

15. INCOME TAXES

      The  components  of income tax expense for the three years ended  December
31, 2005 were (in thousands):

                                            2005     2004    2003
                                           -----------------------
Current tax expense......................  $4,299   $3,007  $5,308
Deferred tax expense.....................   1,883    2,315    (482)
                                           -----------------------
Total tax expense........................  $6,182   $5,322  $4,826
                                           =======================

      Income tax expense  related to realized  securities  gains was $814,000 in
2005, $337,000 in 2004 and $394,000 in 2003.

      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,
                                           ------------------------
                                            2005     2004      2003
                                           ------------------------
Federal tax at statutory rate ...........   35.0%    35.0%     35.0%
Tax exempt income .......................   (5.0)    (5.6)     (7.4)
Bank-owned life insurance earnings.......   (2.8)    (2.5)     (2.2)
ESOP stock dividends ....................   (1.1)    (1.4)     (1.3)
Low income housing credits ..............   (4.0)    (1.0)     (0.3)
Other, net ..............................   (0.8)    (0.7)     (1.9)
                                           ------------------------
Effective rate ..........................   21.3%    23.8%     21.9%
                                           ========================


44
<PAGE>

      Deductible  temporary  differences and taxable temporary  differences gave
rise to a net deferred tax asset for Omega as of December 31, 2005 and 2004. The
components  giving rise to the net  deferred  tax asset are  detailed  below (in
thousands):

                                                           December 31,
                                                        -------------------
                                                          2005       2004
                                                        -------------------
Deferred Tax Assets
 Loan loss reserve ...............................      $  5,636   $  5,682
 Deferred compensation ...........................         1,885      1,682
 Employee benefits ...............................           252        286
 Intangible amortization .........................         2,262      2,481
 Unrealized net gains on securities ..............           660         --
 Low income housing investments ..................           450        409
 Federal net operating loss carryforward .........            --      4,862
 State net operating loss carryforward ...........         1,081        747
 Tax credit carryforwards ........................         6,463      2,971
 Other ...........................................           643        608
                                                        -------------------
 Total deferred tax assets .......................        19,332     19,728
Allowance for deferred tax assets ................        (1,081)      (747)
                                                        -------------------
Net deferred tax assets ..........................        18,251     18,981
Deferred Tax Liabilities
 Depreciation ....................................        (2,044)    (1,160)
 Unrealized net gains on securities ..............            --     (1,899)
 Purchase accounting adjustments .................        (2,230)    (2,907)
 Leases (net) ....................................           (11)    (1,877)
 Low income housing investments ..................            --         --
 Other ...........................................          (215)      (360)
                                                        -------------------
 Total deferred tax liabilities ..................        (4,500)    (8,203)
                                                        -------------------
Net deferred tax asset included
 in other assets .................................      $ 13,751   $ 10,778
                                                        ===================

      The tax credit carryforwards are comprised of general business credits and
alternative  minimum tax credits.  General  business  credits of $3,532,000  can
carry forward  twenty years and will expire  between 2021 and 2025.  Alternative
minimum tax credits of $2,931,000 have an indefinite life.

      Omega  establishes a valuation  allowance  when it is more likely than not
that the Corporation will not be able to realize the benefit of the deferred tax
assets,  i.e.,  when  future  deductibility  is  uncertain.   Periodically,  the
valuation  allowance is reviewed and adjusted based on management's  assessments
of realizable deferred tax assets.  Gross deferred tax assets as of December 31,
2005 and 2004 were reduced by a valuation  allowance of $1,081,000 and $747,000,
respectively,  related to state income tax net operating  losses  generated,  as
utilization  of these  losses  is not  likely.  The  state  net  operating  loss
carryforwards will expire in the years 2018 through 2025.

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.

      In April of 2005, the Board approved a share  repurchase  program to begin
immediately,  authorizing  management  to  buy  back  an  additional  10% of its
outstanding  common  stock,  or  1,261,095  shares.   During  2005,   management
repurchased  67,069  shares  under this  program.  This program was no longer in
effect at December  31,  2005.  On January 23,  2006,  the Board of Directors of
Omega Financial  Corporation approved a new share repurchase program.  (See Note
25.)


                                                                              45
                                  Omega Financial Corporation 2005 Annual Report
<PAGE>

17. CALCULATION OF EARNINGS PER SHARE

      The following  table shows the  calculation  of earnings per share for the
years ended  December 31, 2005,  2004 and 2003 (in  thousands,  except per share
data):

<TABLE>
<CAPTION>
                                                            Years Ended December 31,
                                      --------------------------------------------------------------------
                                                    2005                               2004
                                      --------------------------------------------------------------------
                                       Income      Shares     Per-Share   Income      Shares     Per-Share
                                      Numerator  Denominator   Amount    Numerator  Denominator   Amount
                                      --------------------------------------------------------------------
<S>                                   <C>          <C>        <C>        <C>           <C>       <C>
Net income ........................   $  22,875                          $  17,021
Less: Preferred stock dividends ...          --                                 --
                                      ---------                          ---------
Basic EPS
Income available to
 common shareholders ..............      22,875    12,601     $    1.82     17,021     9,484     $    1.79
                                                              =========                          =========
Effect of Dilutive Securities
Impact of:
Assumed conversion of preferred
 to common stock ..................                    --                                 --
Assumed exercises of
 outstanding options ..............                    40                                 95
Potential shares required for
 contract settlement ..............                     4
Preferred stock dividends available
 to common shareholders ...........          --                                 --
Elimination of tax benefit of
 allocated preferred dividends ....          --                                 --
Additional expense required to
 fund ESOP debt ...................          --                                 --
                                      -------------------                           --------
Diluted EPS
Income available to common
 shareholders plus assumed
 conversions ......................   $  22,875    12,645     $    1.81  $  17,021     9,579     $    1.78
                                      ====================================================================

<CAPTION>
                                      ---------------------------------
                                                    2003
                                      ---------------------------------
                                       Income      Shares     Per-Share
                                      Numerator  Denominator   Amount
                                      ---------------------------------
<S>                                   <C>           <C>       <C>
Net income ........................   $  17,185
Less: Preferred stock dividends ...        (297)
                                      ---------
Basic EPS
Income available to
 common shareholders ..............      16,888     8,169     $    2.07
                                                              =========
Effect of Dilutive Securities
Impact of:
Assumed conversion of preferred
 to common stock ..................                   272
Assumed exercises of
 outstanding options ..............                    83
Potential shares required for
 contract settlement ..............
Preferred stock dividends available
 to common shareholders ...........         297
Elimination of tax benefit of
 allocated preferred dividends ....         (65)
Additional expense required to
 fund ESOP debt ...................           3
                                                 --------
Diluted EPS
Income available to common
 shareholders plus assumed
 conversions ......................   $  17,123     8,524     $    2.01
                                      =================================
</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
404,275, 231,118 and 75,266 on December 31, 2005, 2004 and 2003.


46
<PAGE>

18. COMPREHENSIVE INCOME

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

<TABLE>
<CAPTION>
                                                                                Year Ended December 31, 2005
                                                                              ---------------------------------
                                                                              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 ........................   $(4,983)  $    1,744   $   (3,239)
Less: reclassification adjustment for gains included in net income ........    (2,327)         814       (1,513)
                                                                              ---------------------------------
Other comprehensive income ................................................   $(7,310)  $    2,558   $   (4,752)
                                                                              =================================
</TABLE>

<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)
                                                                              =================================
</TABLE>

<TABLE>
<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)
                                                                              =================================
</TABLE>

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


                                                                              47
                                  Omega Financial Corporation 2005 Annual Report
<PAGE>

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 2005, 2004 and 2003.

                                 Employee    Employee     Director
                                  Stock        Stock       Stock
                                 Purchase     Option       Option
                                   Plan     Plan (1996)     Plan
                                 ---------------------------------
Options Granted in 2005
Expected life of options ......        --       6 years    6 years
Risk-free interest rate .......        --          4.35%      4.35%
Expected volatility ...........        --         35.51%     35.51%
Expected dividend yield .......        --          3.39%      3.39%

                                 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%

      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.  ESPP options  outstanding at December 31,
2005 have a current  weighted  average  exercise  price of $31.82 and a weighted
average  remaining  contractual  life of 3.05  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  December  2015.  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,
2005 have exercise  prices  between $21.00 and $51.64,  with a weighted  average
exercise price of $31.63 and a weighted  average  remaining  contractual life of
4.96 years.  601,460 of these options are  exercisable;  their weighted  average
exercise price is $31.63.

      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, 2015. 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, 2005 have exercise  prices  between
$21.33  and  $50.75,  with a  weighted  average  exercise  price of $32.20 and a
weighted  average  remaining  contractual  life of 4.79  years.  36,210 of these
options are exercisable; their weighted average exercise price is $32.20.

      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.


48
<PAGE>

      A summary of the status of Omega's five stock-based  compensation plans as
of December  31,  2005,  2004 and 2003,  and changes  during the years ending on
those dates is presented below:

<TABLE>
<CAPTION>
                                                       2005                        2004                       2003
                                             -------------------------   ------------------------   -------------------------
                                                           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 ..........   216,042      $   31.40     163,499      $   32.42      158,116     $   30.57
Granted ...................................        --             --      92,840          31.40       63,001         33.67
Acquired options ..........................        --             --      32,492          31.16           --            --
Exercised .................................   (35,479)         26.38     (48,778)         29.64      (41,493)        29.34
Forfeited .................................   (24,304)         29.91     (24,011)         28.98      (16,125)        33.48
                                             --------                    -------                    --------
Outstanding at end of year ................   156,259          31.82     216,042          31.40      163,499         32.42
                                             ========                    =======                    ========
Options exercisable at year-end ...........   156,259                    216,042                     163,499
Weighted average fair value of
 options granted during the year ..........        --                    $  7.95                    $   7.67
</TABLE>

<TABLE>
<CAPTION>
                                                       2005                        2004                        2003
                                             -------------------------   ------------------------   -------------------------
                                                           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 ..........   643,719      $   31.49     444,981      $   29.62      435,803     $    27.73
Granted ...................................    24,500          29.79      59,260          37.41       68,766          35.90
Acquired options ..........................        --             --     182,887          33.61           --             --
Exercised .................................   (35,941)         21.08     (33,846)         25.55      (55,088)         22.61
Forfeited .................................   (30,818)         39.42      (9,563)         39.53       (4,500)         28.42
                                             --------                    -------                    --------
Outstanding at end of year ................   601,460          31.63     643,719          31.49      444,981          29.62
                                             ========                    =======                    ========
Options exercisable at year-end ...........   601,460                    584,459                     376,215
Weighted average fair value of
 options granted during the year ..........  $  10.01                    $ 10.33                    $   9.31
</TABLE>

<TABLE>
<CAPTION>
                                                       2005                        2004                        2003
                                             -------------------------   ------------------------   -------------------------
                                                           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 ..........    65,171      $   31.27      25,000      $   29.71       23,200     $    28.58
Granted ...................................     3,250          29.79       3,000          33.63        3,000          34.85
Acquired options ..........................        --             --      42,132          31.11           --             --
Exercised .................................    (8,591)         23.44      (4,961)         23.44       (1,200)         20.77
Forfeited .................................   (23,620)         32.93          --             --           --             --
                                             --------                    -------                    --------
Outstanding at end of year ................    36,210          32.20      65,171          31.27       25,000          29.71
                                             ========                    =======                    ========
Options exercisable at year-end ...........    36,210                     62,171                      22,000
Weighted average fair value of
 options granted during the year ..........  $  10.01                    $ 10.53                    $   8.86
</TABLE>


                                                                              49
                                  Omega Financial Corporation 2005 Annual Report
<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, 2005,
2004 and 2003,  expenses incurred under this plan were $1,381,000,  $780,000 and
$1,065,000,  respectively.  The  increase  in  expense  in 2005  related  to the
inclusion of the former Sun employees in the ESOP plan during 2005. 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, 2005 the
ESOP holds 822,968 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,  268,586 shares have been allocated to  participants of the
plan as of  December  31,  2005,  based  upon  principal  repayment  of the debt
outstanding.  Fair value of the 77,569  unallocated  shares was $2,181,000.  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 in 2003) and
the remainder in contributions  from the Corporation.  In 2005, the debt service
required was $470,000,  of which $122,000  represented interest expense incurred
by the ESOP. 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,  2005 was  $1,845,000.
Scheduled principal repayments on the ESOP debt are as follows:

2006.................................................    $369,000
2007.................................................     391,000
2008.................................................     415,000
2009.................................................     440,000
2010.................................................     230,000

Defined Contribution Plan

      Omega maintains a defined  contribution  plan for eligible  employees,  as
defined.  Employer  contributions  to the plan  totaled  $244,000,  $174,000 and
$172,000 for the years ended December 31, 2005, 2004 and 2003, 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, 2005 the liability for these future obligations was
$3,063,000 as compared to December 31, 2004 when the  liability was  $3,100,000.
For the years ended  December 31, 2005,  2004 and 2003,  $245,000,  $339,000 and
$512,000,  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.  Expense related to this obligation was $46,000 in 2005
and none in 2004. The carrying value of this future obligation included in Other
Liabilities  is  $716,000  and  $713,000  as of  December  31,  2005  and  2004,
respectively.

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.


50
<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
45 to 60 basis  points at December  31, 2005 and a spread of  approximately  145
basis points at December 31, 2004. Loans discounted using the U.S. Treasury rate
carry a spread of  approximately  265 basis points as of December 31, 2005 and a
spread of approximately 250 basis points at December 31, 2004.

      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 are
equivalent  to the  U.S.  Treasury  rate  for the same  term  plus a  spread  of
approximately  275 basis  points as of December 31, 2005 and 290 basis points as
of December 31, 2004. The market rate for fixed rate mortgages was approximately
6.24% at December 31, 2005 and 6.00% at December 31, 2004.

      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 0 to 50 basis  points  as of  December  31,  2005 and 30 basis
points as of December  31,  2004.  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  that 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 15 to 230  basis  points as of  December  31,  2005 and a spread of 50
basis points as of December 31, 2004. 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 -90 to -10 basis points at December 31, 2005 and a spread of -90 to 35
basis points at December 31, 2004.

      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  maturities.  The
appropriate FHLB borrowing rates ranged from 4.85% to 5.01% at December 31, 2005
and 3.16% to 4.05% at  December  31,  2004.  The  carrying  amounts of all other
borrowings  approximate  fair  value  due  to the  short-term  nature  of  these
instruments.

      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.


                                                                              51
                                  Omega Financial Corporation 2005 Annual Report
<PAGE>

Financial Instruments
(In thousands)

<TABLE>
<CAPTION>
                                                   December 31, 2005         December 31, 2004
                                                -------------------------------------------------
                                                   Book       Estimated      Book       Estimated
                                                  Value      Fair Value     Value      Fair Value
                                                -------------------------------------------------
<S>                                             <C>          <C>          <C>          <C>
Loans (net of unearned interest):
   Commercial, financial and agricultural ...   $  271,162   $  266,264   $  271,650   $  269,693
   Real estate--commercial ..................      465,724      457,226      501,394      494,151
   Real estate--construction ................       22,000       21,857       25,301       25,319
   Real estate--mortgage ....................      242,606      239,784      277,208      283,094
   Home equity ..............................      137,496      139,985      133,077      138,262
   Personal .................................       63,707       62,595      107,859      107,765
   Lease financing ..........................       12,160       12,257       11,761       12,434
   Allowance for loan losses ................     (1 5,482)          --     (1 5,644)          --
                                                -------------------------------------------------
Total loans .................................   $1,199,373   $1,199,968   $1,312,606   $1,330,718
                                                =================================================
Fixed rate time deposits ....................   $  549,174   $  545,021   $  562,687   $  561,426
ESOP debt ...................................        1,845        1,587        2,192        2,327
Junior subordinated debentures ..............       56,692       59,285       57,190       57,555
Long-term debt ..............................       36,322       36,008       99,597       94,907
Standby letters of credit ...................           --          139           --          138
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
$45,902,000  and  $82,829,000  at December 31, 2005 and 2004,  respectively.  In
addition,  the  Corporation had  $215,665,000  and  $205,524,000  outstanding in
unused  lines of credit  commitments  extended to its  customers at December 31,
2005 and 2004, 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, 2005 and 2004,  standby  letters of credit  issued and  outstanding
amounted to $26,462,000 and $24,064,000, respectively. The liability recorded in
accordance with FIN 45 representing  fair market value of the standby letters of
credit at December 31, 2005 and 2004 was $139,000 and $138,000, respectively.


52
<PAGE>

      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, in
2005 and 2004,  there were no financial  options or interest rate  agreements in
place.

      As of December 31,  2005,  there were no  concentrations  of credit to any
particular  industry  equaling  10% or more of total  outstanding  loans.  Total
commercial  loans of $733,000,000,  include an 18.37%  concentration in the real
estate  rental   industry,   9.71%   concentration   in   manufacturing,   8.89%
concentration in retail and 7.60%  concentration in wholesale.  Omega's business
activities are geographically  concentrated  throughout central and northeastern
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 and northeastern Pennsylvania.

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  $19,928,000,  $19,220,000  and
$19,446,000  at December 31,  2005,  2004 and 2003,  respectively.  During 2005,
$10,267,000  of new loans were made,  repayments  totaled  $3,119,000  and loans
removed for retired directors totaled $6,440,000.  None of these loans were past
due, in non-accrual status or restructured at December 31, 2005.

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 as of December 31,
2005,  termination  penalties  of  approximately   $8,435,000  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, 2005 and 2004,  that Omega and its bank subsidiary meet all capital
adequacy requirements to which they were subject.

      As of December 31, 2005, 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.


                                                                              53
                                  Omega Financial Corporation 2005 Annual Report
<PAGE>

      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, 2005:
  Total Capital (to Risk Weighted Assets) .   $219,125    17.0%  $103,441        8.0%   $129,302      10.0%
  Tier I Capital (to Risk Weighted Assets).    203,147    15.7%    51,721        4.0%     77,581       6.0%
  Tier I Capital (to Average Assets) ......    203,147    11.1%    73,146        4.0%     91,432       5.0%
As of December 31, 2004:
  Total Capital (to Risk Weighted Assets) .   $202,248    14.6%  $110,850        8.0%   $138,562      10.0%
  Tier I Capital (to Risk Weighted Assets).    186,604    13.5%    55,425        4.0%     83,137       6.0%
  Tier I Capital (to Average Assets) ......    186,604    15.6%    47,954        4.0%     59,942       5.0%
OMEGA BANK
As of December 31, 2005:
  Total Capital (to Risk Weighted Assets) .   $201,871    15.8%  $102,032        8.0%   $127,540      10.0%
  Tier I Capital (to Risk Weighted Assets).    185,893    14.6%    51,016        4.0%     76,524       6.0%
  Tier I Capital (to Average Assets) ......    185,893    10.3%    72,259        4.0%     90,324       5.0%
As of December 31, 2004:
  Total Capital (to Risk Weighted Assets) .   $216,374    15.8%  $109,426        8.0%   $136,782      10.0%
  Tier I Capital (to Risk Weighted Assets).    200,730    14.7%    54,713        4.0%     82,069       6.0%
  Tier I Capital (to Average Assets) ......    200,730    17.1%    46,894        4.0%     58,617       5.0%
</TABLE>

      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, 2005,  Omega Bank
had an aggregate  lending limit to affiliates of $30,305,000,  and no amount was
outstanding with Omega.

25. SUBSEQUENT EVENTS

      On January 23, 2006, the Board of Directors of Omega Financial Corporation
approved a share  repurchase  program  authorizing  the buy back of up to 10% of
Omega's  outstanding  common stock. At that time,  there were 12,604,477  common
shares outstanding with 1,260,447 shares eligible to be repurchased. The program
will  remain  in  effect  until the 10%  limit is  reached;  however,  it may be
discontinued at any time by the Board of Directors.


54
<PAGE>

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

CONDENSED BALANCE SHEETS
(Unaudited)

<TABLE>
<CAPTION>
                                                                                             December 31,
                                                                                        -----------------------
                                                                                           2005         2004
                                                                                        -----------------------
<S>                                                                                     <C>          <C>
ASSETS:
 Cash .....................................................................             $    5,069   $    6,247
 Investment in bank subsidiaries ..........................................                331,539      353,108
 Investment in non-bank subsidiaries ......................................                 37,297       37,280
 Investment in unconsolidated subsidiaries ................................                  1,625        1,625
 Investment securities available for sale .................................                    968          500
 Premises and equipment, net ..............................................                  4,506        4,483
 Other assets .............................................................                     80            7
                                                                                        -----------------------
TOTAL ASSETS ..............................................................             $  381,084   $  403,250
                                                                                        =======================
LIABILITIES:
 Demand loan ..............................................................             $       --   $   10,000
 Long-term debt ...........................................................                     --       12,000
 Junior subordinated debentures ...........................................                 56,692       57,190
 ESOP debt ................................................................                  1,845        2,192
 Accounts payable and other liabilities ...................................                  4,057        6,129
                                                                                        -----------------------
TOTAL LIABILITIES .........................................................                 62,594       87,511
SHAREHOLDERS' EQUITY ......................................................                318,490      315,739
                                                                                        -----------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ................................             $  381,084   $  403,250
                                                                                        =======================
</TABLE>

CONDENSED STATEMENTS OF INCOME
(Unaudited)

<TABLE>
<CAPTION>
                                                                                  Years Ended December 31,
                                                                             ----------------------------------
                                                                               2005        2004        2003
                                                                             ----------------------------------
<S>                                                                          <C>        <C>          <C>
INCOME:
 Dividends from:
  Bank subsidiaries .......................................................  $ 40,461   $   12,420   $   11,493
  Non-bank subsidiaries ...................................................     1,663          313        2,250
  Unconsolidated subsidiaries .............................................       120           48           --
 Securities available for sale ............................................        32            7           --
 Fees received from subsidiaries ..........................................       606          577          468
 Other income .............................................................        10            8           --
                                                                             ----------------------------------
TOTAL INCOME ..............................................................    42,892       13,373       14,211
EXPENSE:
 Interest expense .........................................................     4,354        1,119            3
 Amortization .............................................................      (498)        (203)          --
 Salaries and employee benefits ...........................................       575          596          619
 Other ....................................................................       569          706          571
                                                                             ----------------------------------
TOTAL EXPENSE .............................................................     5,000        2,218        1,193
                                                                             ----------------------------------
INCOME BEFORE INCOME TAXES AND EQUITY IN
 UNDISTRIBUTED NET INCOME OF SUBSIDIARIES .................................    37,892       11,155       13,018
Income tax benefit ........................................................    (1,793)        (865)        (536)
                                                                             ----------------------------------
                                                                               39,685       12,020       13,554
Equity in undistributed net income of subsidiaries ........................   (16,810)       5,001        3,631
                                                                             ----------------------------------
NET INCOME ................................................................  $ 22,875   $   17,021   $   17,185
                                                                             ==================================
</TABLE>


                                                                              55
                                  Omega Financial Corporation 2005 Annual Report
<PAGE>

CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)

<TABLE>
<CAPTION>
                                                                                  Years Ended December 31,
                                                                             ----------------------------------
                                                                               2005        2004        2003
                                                                             ----------------------------------
<S>                                                                          <C>        <C>          <C>
Cash flows from operating activities:
Net income ................................................................  $ 22,875   $   17,021   $   17,185
Adjustments to reconcile net income to net cash provided by operating
 activities:
   Depreciation and amortization ..........................................      (326)         119          369
   Gain on sale of assets .................................................       (10)          --           --
   (Increase) decrease in tax receivable ..................................        --         (288)         208
   (Increase) decrease in interest and other receivable ...................       (73)         310          274
   Increase (decrease) in taxes payable ...................................    (2,205)          --           39
   (Decrease) increase in accounts payable and accrued expenses ...........      (490)     (11,881)         567
   (Increase) decrease in undistributed earnings of subsidiaries ..........    16,810       (5,001)      (3,642)
                                                                             ----------------------------------
       Total adjustments ..................................................    13,706      (16,741)      (2,185)
                                                                             ----------------------------------
Net cash provided by operating activities .................................    36,581          280       15,000
Cash flows from investing activities:
   Capital expenditures ...................................................      (293)        (128)        (109)
   Sale of fixed assets ...................................................        10           --           --
   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 .......................      (283)     (44,265)        (109)
Cash flows from financing activities:
   Issuance (payment) of demand note payable ..............................   (10,000)      10,000           --
   Issuance of junior subordinated debt ...................................        --       37,114           --
   Issuance (payment) of long-term debt ...................................   (12,000)      12,000           --
   Principal (payments) made on debt ......................................        --       (1,657)          --
   Dividends paid .........................................................   (15,651)     (11,388)     (12,230)
   Net change in interest bearing liabilities .............................        25           38           31
   Capital contribution to subsidiary .....................................        --       (2,453)          --
   Tax benefit from preferred stock dividend and stock option activity ....       110          186          303
   Issuance of common stock ...............................................     1,904        2,427        2,389
   Acquisition of treasury stock ..........................................    (1,864)      (2,488)      (2,886)
                                                                             ----------------------------------
Net cash used in financing activities .....................................   (34,476)      43,779      (12,393)
                                                                             ----------------------------------
Net (decrease) increase in cash and due from banks ........................  $ (1,178)  $     (206)  $    2,498
                                                                             ==================================
Cash and due from banks at beginning of period ............................  $  6,247   $    6,453   $    3,955
Cash and due from banks at end of period ..................................     5,069        6,247        6,453
                                                                             ----------------------------------
Net (decrease) increase in cash and due from banks ........................  $ (1,178)  $     (206)  $    2,498
                                                                             ==================================
Income taxes paid .........................................................  $    375   $    3,620   $    5,625
Interest paid .............................................................     4,333          248            3
</TABLE>


56
<PAGE>

27. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

      The unaudited quarterly results of operations for the years ended December
31, 2005 and 2004 follow (in thousands, except per share data):

                                                2005 Quarter Ended
                                   ---------------------------------------------
                                   March 31  June 30   September 30  December 31
                                   ---------------------------------------------
Total interest income ..........   $22,072   $22,639     $23,150       $23,314
Total interest expense .........     6,830     7,289       7,541         7,845
                                   ---------------------------------------------
Net interest income ............    15,242    15,350      15,609        15,469
Provision for loan losses ......       142       180         290           590
                                   ---------------------------------------------
Income from credit activities ..    15,100    15,170      15,319        14,879
Other income
  Service fees .................     2,452     2,653       2,741         2,878
  Securities gains .............       988       549         134           656
  Other income .................     5,046     3,939       4,023         3,809
Other expenses
  Salaries and benefits ........     7,551     7,721       7,720         7,563
  Net occupancy expense ........     1,111     1,064         948         1,107
  Equipment expense ............     1,089     1,031       1,040         1,084
  Data processing service ......       626       621         632           642
  Other expenses ...............     4,592     5,226       4,852         5,059
                                   ---------------------------------------------
Income before income taxes .....     8,617     6,648       7,025         6,767
Income tax expense .............     2,040     1,267       1,460         1,415
                                   ---------------------------------------------
Net income .....................     6,577     5,381       5,565         5,352
Basic earnings per share .......   $  0.52   $  0.43     $  0.44       $  0.43
Diluted earnings per share .....      0.52      0.43        0.44          0.42

                                                2004 Quarter Ended
                                   ---------------------------------------------
                                   March 31  June 30   September 30  December 31
                                   ---------------------------------------------
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)
                                   ---------------------------------------------
Income from credit activities       10,090     9,886       9,773        16,256
Other income
  Service fees                       1,620     1,943       1,884         3,176
  Securities gains                       8       203          60           692
  Other income                       2,110     2,138       1,974         4,598
Other expenses
  Salaries and benefits              4,955     4,802       4,938         8,193
  Net occupancy expense                627       559         547         1,057
  Equipment expense                    702       729         706         1,109
  Data processing service              423       430         439           547
  Other expenses                     2,526     2,524       2,415         5,840
                                   ---------------------------------------------
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           $  0.43   $  0.46     $  0.42       $  0.47
Diluted earnings per share            0.42      0.46        0.42          0.47


                                                                              57
                                  Omega Financial Corporation 2005 Annual Report
<PAGE>

Omega Financial Corporation and Subsidiaries
Common Stock Market Prices and Dividends

      The common stock of Omega  Financial  Corporation  is traded on the Nasdaq
National  Market under the symbol OMEF.  As of December 31, 2005,  the number of
shareholders of record of the Corporation's common stock was 4,451.

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

                                  2005
                       --------------------------
                                        Dividends
Quarter Ended           High     Low    Declared
-------------------------------------------------
March 31 ...........   $34.50   $29.40   $ 0.31
June 30 ............    31.54    27.05     0.31
September 30 .......    33.50    26.55     0.31
December 31 ........    30.94    25.42     0.31

                                  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

      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
 Teresa Ciambotti, Senior Vice President
 Director of Investor Relations
 366 Walker Drive
 State College, PA 16801
 800-494-1810
 814-231-6401
 tciambotti@omef.com


58
<PAGE>

Omega Financial Corporation and Subsidiaries
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, 2005, a copy of which can be
obtained as described below.

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,  2005 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 24, 2006 at Ramada Inn, 1450 South  Atherton
Street, State College, Pennsylvania.


                                                                              59
                                  Omega Financial Corporation 2005 Annual Report
<PAGE>

Omega Financial Corporation
BOARD OF DIRECTORS

<TABLE>
<S>                                  <C>                               <C>                            <C>
David B. Lee                        Philip E. Gingerich                Stephen M. Krentzman           Stanton R. Sheetz
Chairman                            Self employed Real Estate          President and owner,           President and C.E.O., Sheetz,
                                    Appraiser                          Joe Krentzman & Son, Inc.      Inc.
Raymond F. Agostinelli              and Consultant, Retired                                           Retail Convenience Stores
President and owner, McLanahan                                         D. Stephen Martz
Drug Store Management Co., Inc.     Jodi L. Green                      Retired Officer, Omega         Robert A. Szeyller
                                    Shareholder and Director           Financial Corporation          Retired Managing Partner,
Carl H. Baxter                      Seligman, Friedman & Company,                                     Pennsylvania Financial Group,
President and owner,                Certified Public Accountants       Robert N. Oliver               Inc.
Baxter Machine Products, Inc.       and Consultants                    Owner, Oliver Farms            Pension and Insurance
                                                                                                      Consulting Firm
Maureen M. Bufalino                 Robert A. Hormell                  James W. Powers, Sr.
Senior Vice President and           Assistant Director, Susquehanna    Retired President, Polestar    Dennis Van Benthuysen
Regional President, Omega Bank      Economic Development               Plastics                       President and owner,
                                    Association--Council of            Manufacturing Company          The Colonial Furniture Company
                                    Governments (SEDA-COG)

                                    Donita R. Koval
                                    President and Chief Executive
                                    Officer

OFFICERS

David B. Lee                        Daniel L. Warfel, CPA              Walter Kay                     Byron Mertz, III
Chairman                            Executive Vice President and       Chief Information Officer      Senior Vice President
                                    Chief Financial Officer
Donita R. Koval                                                        Teresa M. Ciambotti, CFA       David N. Thiel
President and Chief Executive       David S. Runk                      Senior Vice President,         Senior Vice President,
Officer                             Executive Vice President           Corporate Controller and       Operations and Secretary
                                                                       Director of Investor Relations

Omega Bank
BOARD OF DIRECTORS

David B. Lee, Chairman              Maureen M. Bufalino                Frederick J. Kissinger         James W. Powers, Sr.

Raymond F. Agostinelli              Allen E. Gibboney, Esq.            Donita R. Koval                Stanton R. Sheetz

Edward J. Anderson                  Philip E. Gingerich                Stephen M. Krentzman           Robert A. Szeyller

Ralph W. Arthur, Jr.                Jodi L. Green                      D. Stephen Martz               Dennis Van Benthuysen

Carl H. Baxter                      Robert A. Hormell                  Robert N. Oliver

OFFICERS

David B. Lee                        David S. Runk                      Byron Mertz, III               Teresa M. Ciambotti, CFA
Chairman                            Executive Vice President           Regional President             Senior Vice President
                                    Chief Operating Officer            Susquehanna Valley Region      Corporate Controller
Donita R. Koval
President and Chief Executive       Maureen M. Bufalino                John R. Franks, Jr.            David N. Thiel
Officer                             Regional President                 Executive Vice President       Senior Vice President
                                    Wilkes-Barre Region                Branch Administration          Cashier and Secretary
Daniel L. Warfel, CPA
Executive Vice President            Bruce R. Erb, CFP, CTFA            Thomas Bixler
Chief Financial Officer             Wealth Management President        Senior Vice President
                                                                       Commercial Lending
</TABLE>

MID-PENN INSURANCE ASSOCIATES, INC.

Daniel R. Geise, President

Christopher J. Fellon, Vice President

SENTRY TRUST COMPANY, SUBSIDIARY OF OMEGA BANK

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


60
<PAGE>

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366 WALKER DRIVE
STATE COLLEGE, PA 16801

www.omegafinancial.com