##### 



Exhibit 13.1
 
 2007 Annual Report
 Page 1




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##### 



SELECTED FINANCIAL DATA
  2007
    
    2006
    
    2005
    
    2004
    
    2003(In thousands of dollars, except share and per share data)BALANCE SHEET INFORMATIONat December 31Assets
    
    $
    1,789,100
    
    
    $
    1,815,818
    
    
    $
    1,939,979
    
    
    $
    2,082,571
    
    
    $
    1,140,166Deposits
    
    
    1,280,869
    
    
    
    1,325,763
    
    
    
    1,422,530
    
    
    
    1,502,082
    
    
    
    907,580Loans, net
    
    
    1,090,284
    
    
    
    1,135,048
    
    
    
    1,199,373
    
    
    
    1,312,606
    
    
    
    788,144Investment securities
    
    
    288,641
    
    
    
    303,894
    
    
    
    353,355
    
    
    
    327,979
    
    
    
    240,539Short-term borrowings
    
    
    78,449
    
    
    
    65,712
    
    
    
    90,153
    
    
    
    90,259
    
    
    
    33,263Junior subordinated debentures
    
    
    55,695
    
    
    
    56,193
    
    
    
    56,692
    
    
    
    57,190
    
    
    
    Long-term debt (including ESOP debt)
    
    
    26,434
    
    
    
    29,358
    
    
    
    38,167
    
    
    
    101,771
    
    
    
    24,121Shareholders equity
    
    
    334,749
    
    
    
    325,211
    
    
    
    318,490
    
    
    
    315,739
    
    
    
    167,439Number of shares outstandingcommon
    
    
    12,665,613
    
    
    
    12,622,802
    
    
    
    12,599,508
    
    
    
    12,593,524
    
    
    
    8,458,823INCOME STATEMENT INFORMATIONYears Ended December 31Total interest income
    
    $
    93,978
    
    
    $
    94,787
    
    
    $
    91,175
    
    
    $
    62,371
    
    
    $
    56,783Net interest income
    
    
    59,825
    
    
    
    61,066
    
    
    
    61,670
    
    
    
    45,705
    
    
    
    43,077Provision (credit) for loan losses
    
    
    2,155
    
    
    
    3,896
    
    
    
    1,202
    
    
    
    (300
    )
    
    
    350Income before income taxes
and discontinued operations
    
    
    27,657
    
    
    
    26,447
    
    
    
    28,976
    
    
    
    22,443
    
    
    
    22,011Income tax expense
    
    
    6,560
    
    
    
    5,702
    
    
    
    6,213
    
    
    
    5,357
    
    
    
    4,826Discontinued operations, net of tax
    
    
    
    
    
    
    (314
    )
    
    
    112
    
    
    
    (65
    )
    
    
    Net income
    
    
    21,097
    
    
    
    20,431
    
    
    
    22,875
    
    
    
    17,021
    
    
    
    17,185PER COMMON SHARE DATABasic earnings per shareContinuing operations
    
    $
    1.67
    
    
    $
    1.65
    
    
    $
    1.81
    
    
    $
    1.80
    
    
    $
    2.07Discontinued operations
    
    
    
    
    
    
    (0.02
    )
    
    
    0.01
    
    
    
    (0.01
    )
    
    
    Net income (1)
    
    
    1.67
    
    
    
    1.62
    
    
    
    1.82
    
    
    
    1.79
    
    
    
    2.07Diluted earnings per shareContinuing operations
    
    
    1.67
    
    
    
    1.65
    
    
    
    1.80
    
    
    
    1.79
    
    
    
    2.01Discontinued operations
    
    
    
    
    
    
    (0.02
    )
    
    
    0.01
    
    
    
    (0.01
    )
    
    
    Net income (1)
    
    
    1.67
    
    
    
    1.62
    
    
    
    1.81
    
    
    
    1.78
    
    
    
    2.01Cash dividendscommon
    
    
    1.24
    
    
    
    1.24
    
    
    
    1.24
    
    
    
    1.20
    
    
    
    1.17Book valuecommon
    
    
    26.43
    
    
    
    25.76
    
    
    
    25.28
    
    
    
    25.07
    
    
    
    19.79Book valuetangible
    
    
    13.37
    
    
    
    12.61
    
    
    
    11.76
    
    
    
    11.28
    
    
    
    19.79FINANCIAL RATIOSbased on net incomeReturn on average tangible equity
    
    
    12.72
    %
    
    
    13.22
    %
    
    
    15.33
    %
    
    
    11.84
    %
    
    
    10.32
    %Return on average common equity
    
    
    6.36
    
    
    
    6.32
    
    
    
    7.13
    
    
    
    8.89
    
    
    
    10.32Return on average tangible assets
    
    
    1.29
    
    
    
    1.18
    
    
    
    1.25
    
    
    
    1.26
    
    
    
    1.50Return on average assets
    
    
    1.17
    
    
    
    1.08
    
    
    
    1.15
    
    
    
    1.24
    
    
    
    1.50Dividend payoutcommon
    
    
    74.44
    
    
    
    76.59
    
    
    
    68.30
    
    
    
    66.91
    
    
    
    55.76Average equity to average assets
    
    
    18.46
    
    
    
    17.07
    
    
    
    16.06
    
    
    
    13.97
    
    
    
    14.53
 
 (1)
    
    Totals may not sum due to rounding Page 2




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MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 FORWARD LOOKING STATEMENTS
  COMPANY OVERVIEW
  Nature of Operations
   Economic and Industry-Wide Factors Relevant to Omega
  Page 3




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##### 



Focus of Management
  Customer Relationships
  Shareholder Satisfaction
  Balance Sheet Stability
  Operating Results
  Commitment to the Community
  Omegas Opportunities
  Omegas Challenges
 Competition 
 Page 4




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##### 



Regulated Company
   APPLICATION OF CRITICAL ACCOUNTING POLICIES
     Page 5




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##### 



SUMMARYTHE YEAR IN REVIEW
  Net Interest Margin
 Provision for loan losses
 Other income
 Other expense
 Dividends
 Managing the Balance Sheet
 Merger Agreement
 Risk Factors
 Page 6




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##### 



RESULTS OF OPERATIONS
 Financial Performance  2007 vs. 2006
   2007
    
    2006% of Average
    
    
    
    
    
    % of AverageAssets
    
    
    
    
    
    AssetsNet interest income
    
    $
    59,825
    
    
    
    3.33
    %
    
    $
    61,066
    
    
    
    3.22
    %Loan loss provision
    
    
    (2,155
    )
    
    
    (0.12
    )
    
    
    (3,896
    )
    
    
    (0.21
    )Trust fees
    
    
    4,312
    
    
    
    0.24
    
    
    
    4,063
    
    
    
    0.21Deposit service fees
    
    
    10,410
    
    
    
    0.58
    
    
    
    10,130
    
    
    
    0.53Other fees
    
    
    10,133
    
    
    
    0.56
    
    
    
    9,511
    
    
    
    0.50Bank-owned life insurance
    
    
    2,556
    
    
    
    0.14
    
    
    
    2,413
    
    
    
    0.13Security gains
    
    
    632
    
    
    
    0.04
    
    
    
    389
    
    
    
    0.02Gains on sale of other assets
    
    
    39
    
    
    
    0.00
    
    
    
    2,380
    
    
    
    0.13Total non-interest income
    
    
    28,082
    
    
    
    1.56
    
    
    
    28,886
    
    
    
    1.53Employee expense
    
    
    (28,667
    )
    
    
    (1.60
    )
    
    
    (29,398
    )
    
    
    (1.55
    )Occupancy and equipment
    
    
    (8,820
    )
    
    
    (0.49
    )
    
    
    (8,889
    )
    
    
    (0.47
    )Other non-interest expense
    
    
    (19,763
    )
    
    
    (1.10
    )
    
    
    (20,440
    )
    
    
    (1.08
    )Amortization of Intangibles
    
    
    (845
    )
    
    
    (0.05
    )
    
    
    (882
    )
    
    
    (0.05
    )Total non-interest expense
    
    
    (58,095
    )
    
    
    (3.23
    )
    
    
    (59,609
    )
    
    
    (3.15
    )Income tax expense
    
    
    (6,560
    )
    
    
    (0.37
    )
    
    
    (5,702
    )
    
    
    (0.30
    )Net income from continuing operations
    
    $
    21,097
    
    
    
    1.17
    %
    
    $
    20,745
    
    
    
    1.10
    %Income from discontinued operations, net of tax
    
    $
    
    
    
    
    0.00
    
    
    $
    446
    
    
    
    0.02Loss on disposal of discontinued operations, net of tax
    
    
    
    
    
    
    0.00
    
    
    
    (760
    )
    
    
    (0.04
    )Income (Loss) from discontinued operations
    
    $
    
    
    
    
    0.00
    %
    
    $
    (314
    )
    
    
    (0.02
    )%Net Income
    
    $
    21,097
    
    
    
    1.17
    %
    
    $
    20,431
    
    
    
    1.08
    %Average Assets
    
    $
    1,796,135
    
    
    
    
    
    
    $
    1,893,973
  Page 7




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2007
    
    2006
    
    2005
    
    2004
    
    2003Net interest margin
    
    
    4.10
    %
    
    
    3.95
    %
    
    
    3.77
    %
    
    
    3.71
    %
    
    
    4.07
    %Net interest margin, tax-equivalent
    
    
    4.19
    %
    
    
    4.07
    %
    
    
    3.92
    %
    
    
    3.92
    %
    
    
    4.32
    %Yield on earning assets
    
    
    6.44
    %
    
    
    6.14
    %
    
    
    5.58
    %
    
    
    5.06
    %
    
    
    5.36
    %Cost of funds
    
    
    2.34
    %
    
    
    2.18
    %
    
    
    1.80
    %
    
    
    1.35
    %
    
    
    1.29
    %Non interest income to average assets
    
    
    1.53
    %
    
    
    1.47
    %
    
    
    1.35
    %
    
    
    1.38
    %
    
    
    1.34
    %Non interest expenses to average assets
    
    
    3.23
    %
    
    
    3.20
    %
    
    
    3.07
    %
    
    
    3.22
    %
    
    
    3.28
    %Return on average assets
    
    
    1.17
    %
    
    
    1.08
    %
    
    
    1.15
    %
    
    
    1.24
    %
    
    
    1.50
    %Return on average tangible assets
    
    
    1.29
    %
    
    
    1.18
    %
    
    
    1.25
    %
    
    
    1.26
    %
    
    
    1.50
    %Return on average stated equity
    
    
    6.36
    %
    
    
    6.32
    %
    
    
    7.13
    %
    
    
    8.89
    %
    
    
    10.32
    %Return on average tangible equity
    
    
    12.72
    %
    
    
    13.22
    %
    
    
    15.33
    %
    
    
    11.84
    %
    
    
    10.32
    %
  
    
    $2.2 million total provision for loan losses, of which $1.0 million related to two large commercial
borrowers;
    
    Decrease in earning assets, offset by an increase in the tax-equivalent net
interest margin of 12
basis points despite
a challenging interest rate environment; and
    
    Reduction in non-interest expense, due primarily to cost savings resulting from
renewal of various
service contracts, and the sale of three branches and Sentry Trust Company in the
fourth quarter of
2006.
 Provision for Loan Losses
    Net Interest Income and Margin
  Page 8




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Page 9




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##### 



Table 1
 Years Ended December 31,2007
    
    
    2006Average
    
    
    
    
    
    
    Yield/
    
    
    Average
    
    
    
    
    
    
    Yield/Balance (1)
    
    
    Interest
    
    
    Rate
    
    
    Balance (1)
    
    
    Interest
    
    
    RateASSETSInterest earning assets:Taxable loans (2)
    
    $
    1,079,480
    
    
    $
    76,406
    
    
    
    7.08
    %
    
    $
    1,128,048
    
    
    $
    78,472
    
    
    
    6.96
    %Tax-exempt loans
    
    
    55,682
    
    
    
    2,508
    
    
    
    4.50
    
    
    
    59,190
    
    
    
    2,631
    
    
    
    4.45Total loans
    
    
    1,135,162
    
    
    
    78,914
    
    
    
    6.95
    
    
    
    1,187,238
    
    
    
    81,103
    
    
    
    6.83Taxable investment securities
    
    
    292,549
    
    
    
    13,654
    
    
    
    4.67
    
    
    
    298,486
    
    
    
    11,635
    
    
    
    3.90Tax-exempt investment securities
    
    
    1,044
    
    
    
    32
    
    
    
    3.07
    
    
    
    33,589
    
    
    
    883
    
    
    
    2.63Total investment securities
    
    
    293,593
    
    
    
    13,686
    
    
    
    4.67
    
    
    
    332,075
    
    
    
    12,518
    
    
    
    3.77Interest bearing deposits
    
    
    16,263
    
    
    
    662
    
    
    
    4.07
    
    
    
    12,956
    
    
    
    510
    
    
    
    3.94Federal funds sold
    
    
    14,952
    
    
    
    716
    
    
    
    4.79
    
    
    
    12,685
    
    
    
    656
    
    
    
    5.17Total interest earning assets
    
    
    1,459,970
    
    
    
    93,978
    
    
    
    6.44
    
    
    
    1,544,954
    
    
    
    94,787
    
    
    
    6.14Non-interest earning assets:Cash and due from banks
    
    
    46,998
    
    
    
    
    
    
    
    
    
    
    
    50,230Allowance for loan losses
    
    
    (14,434
    )
    
    
    
    
    
    
    
    
    
    
    (15,205
    )Premises and equipment
    
    
    29,988
    
    
    
    
    
    
    
    
    
    
    
    36,542Other assets (3)
    
    
    273,613
    
    
    
    
    
    
    
    
    
    
    
    277,452Total assets
    
    $
    1,796,135
    
    
    
    
    
    
    
    
    
    
    $
    1,893,973LIABILITIES AND SHAREHOLDERS EQUITYInterest bearing liabilities:Interest bearing demand deposits (4)
    
    $
    365,774
    
    
    
    3,292
    
    
    
    0.90
    
    
    $
    395,769
    
    
    
    3,546
    
    
    
    0.90Savings deposits
    
    
    176,068
    
    
    
    967
    
    
    
    0.55
    
    
    
    195,280
    
    
    
    1,072
    
    
    
    0.55Time deposits
    
    
    528,957
    
    
    
    22,334
    
    
    
    4.22
    
    
    
    571,094
    
    
    
    21,349
    
    
    
    3.74Other, including short-term borrowings, long-term debt,
and other interest bearing liabilities
    
    
    152,655
    
    
    
    7,560
    
    
    
    4.95
    
    
    
    159,268
    
    
    
    7,754
    
    
    
    4.87Total interest bearing liabilities
    
    
    1,223,454
    
    
    
    34,153
    
    
    
    2.79
    
    
    
    1,321,411
    
    
    
    33,721
    
    
    
    2.55Non-interest bearing liabilities:Demand deposits
    
    
    228,869
    
    
    
    
    
    
    
    
    
    
    
    235,505Other
    
    
    12,176
    
    
    
    
    
    
    
    
    
    
    
    13,687Shareholders equity
    
    
    331,636
    
    
    
    
    
    
    
    
    
    
    
    323,370Total liabilities and shareholders equity
    
    $
    1,796,135
    
    
    
    
    
    
    
    
    
    
    $
    1,893,973Net interest income
    
    
    
    
    
    $
    59,825
    
    
    
    
    
    
    
    
    
    
    $
    61,066Net yield on interest earning assets (5)
    
    
    
    
    
    
    
    
    
    
    4.10
    %
    
    
    
    
    
    
    
    
    
    
    3.95
    %Net interest income and yield  tax equivalent basis (6)
    
    
    
    
    
    $
    61,193
    
    
    
    4.19
    %
    
    
    
    
    
    $
    62,958
    
    
    
    4.07
    %
 
 Notes:1)
    
    Average balances were calculated using a daily average.2)
    
    Non-accruing loans and investments are included until they are charged off.3)
    
    Includes gross unrealized gain on securities available for sale of $782 in 2007, a total
gross unrealized loss on securities available for sale of $2,066 in 2006 and a gross
unrealized gain on securities available for sale of $2,282 in 2005.4)
    
    Includes NOW, money management and money market accounts.5)
    
    Net yield on interest earning assets is net interest income divided by average interest
earning assets.6)
    
    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%.7)
    
    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. Page 10




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##### 



Year Ended December 31,2005
    
    
    2007 Compared to 2006
    
    
    2006 Compared to 2005Average
    
    
    
    
    
    
    Yield/
    
    
    Increase (Decrease) Due To (7)
    
    
    Increase (Decrease) Due To (7)Balance (1)
    
    
    Interest
    
    
    Rate
    
    
    Volume
    
    
    Rate
    
    
    Total
    
    
    Volume
    
    
    Rate
    
    
    Total$
    1,202,607
    
    
    $
    76,204
    
    
    
    6.34
    %
    
    $
    (3,327
    )
    
    $
    1,261
    
    
    $
    (2,066
    )
    
    $
    (4,776
    )
    
    $
    7,044
    
    
    $
    2,26860,048
    
    
    
    2,703
    
    
    
    4.50
    
    
    
    (161
    )
    
    
    38
    
    
    
    (123
    )
    
    
    (46
    )
    
    
    (26
    )
    
    
    (72
    )1,262,655
    
    
    
    78,907
    
    
    
    6.25
    
    
    
    (3,488
    )
    
    
    1,299
    
    
    
    (2,189
    )
    
    
    (4,822
    )
    
    
    7,018
    
    
    
    2,196266,791
    
    
    
    9,314
    
    
    
    3.49
    
    
    
    (125
    )
    
    
    2,144
    
    
    
    2,019
    
    
    
    1,198
    
    
    
    1,123
    
    
    
    2,32166,449
    
    
    
    1,917
    
    
    
    2.88
    
    
    
    (978
    )
    
    
    127
    
    
    
    (851
    )
    
    
    (880
    )
    
    
    (154
    )
    
    
    (1,034
    )333,240
    
    
    
    11,231
    
    
    
    3.37
    
    
    
    (1,103
    )
    
    
    2,271
    
    
    
    1,168
    
    
    
    318
    
    
    
    969
    
    
    
    1,28721,637
    
    
    
    551
    
    
    
    2.55
    
    
    
    135
    
    
    
    17
    
    
    
    152
    
    
    
    (272
    )
    
    
    231
    
    
    
    (41
    )17,539
    
    
    
    486
    
    
    
    2.77
    
    
    
    111
    
    
    
    (51
    )
    
    
    60
    
    
    
    (163
    )
    
    
    333
    
    
    
    1701,635,071
    
    
    
    91,175
    
    
    
    5.58
    
    
    
    (4,346
    )
    
    
    3,537
    
    
    
    (809
    )
    
    
    (4,939
    )
    
    
    8,551
    
    
    
    3,61253,629(15,295
    )37,447286,608$
    1,997,460$
    470,292
    
    
    
    3,963
    
    
    
    0.84
    
    
    
    (326
    )
    
    
    72
    
    
    
    (254
    )
    
    
    (697
    )
    
    
    280
    
    
    
    (417
    )216,923
    
    
    
    1,187
    
    
    
    0.55
    
    
    
    (105
    )
    
    
    
    
    
    
    (105
    )
    
    
    (115
    )
    
    
    
    
    
    
    (115
    )566,689
    
    
    
    16,541
    
    
    
    2.92
    
    
    
    (1,662
    )
    
    
    2,647
    
    
    
    985
    
    
    
    129
    
    
    
    4,679
    
    
    
    4,808177,066
    
    
    
    7,814
    
    
    
    4.41
    
    
    
    (285
    )
    
    
    91
    
    
    
    (194
    )
    
    
    (963
    )
    
    
    903
    
    
    
    (60
    )1,430,970
    
    
    
    29,505
    
    
    
    2.06
    
    
    
    (2,379
    )
    
    
    2,811
    
    
    
    432
    
    
    
    (1,646
    )
    
    
    5,862
    
    
    
    4,216231,14414,810320,536$
    1,997,460$
    61,670
    
    
    
    
    
    
    $
    (1,967
    )
    
    $
    726
    
    
    $
    (1,241
    )
    
    $
    (3,293
    )
    
    $
    2,689
    
    
    $
    (604
    )3.77
    %$
    64,158
    
    
    
    3.92
    %
 Page 11




---



##### 



Other (Non-Interest) Income
   2007
    
    2006% of total
    
    
    
    
    
    % of totalOTHER INCOME:Service fees on deposit accounts
    
    $
    10,410
    
    
    
    37.07
    %
    
    $
    10,130
    
    
    
    35.07
    %Service fees on loans
    
    
    1,499
    
    
    
    5.34
    
    
    
    1,635
    
    
    
    5.66Earnings on bank-owned life insurance
    
    
    2,556
    
    
    
    9.10
    
    
    
    2,413
    
    
    
    8.35Trust fees
    
    
    4,312
    
    
    
    15.36
    
    
    
    4,063
    
    
    
    14.07Investment and insurance product sales
    
    
    2,868
    
    
    
    10.21
    
    
    
    2,942
    
    
    
    10.18Gain on sale of loans and other assets
    
    
    39
    
    
    
    0.14
    
    
    
    2,380
    
    
    
    8.24Net gains on investment securities
    
    
    632
    
    
    
    2.25
    
    
    
    389
    
    
    
    1.35Other
    
    
    5,766
    
    
    
    20.53
    
    
    
    4,934
    
    
    
    17.08TOTAL OTHER INCOME
    
    $
    28,082
    
    
    
    100.00
    %
    
    $
    28,886
    
    
    
    100.00
    %
    Other (Non-Interest) Expense
  Page 12




---



##### 



2007
    
    2006% of total
    
    
    
    
    
    % of totalOTHER EXPENSE:Salaries and employee benefits
    
    $
    28,667
    
    
    
    49.35
    %
    
    $
    29,398
    
    
    
    49.32
    %Net occupancy expense
    
    
    4,266
    
    
    
    7.34
    
    
    
    4,318
    
    
    
    7.24Equipment expense
    
    
    4,554
    
    
    
    7.84
    
    
    
    4,571
    
    
    
    7.67Data processing service
    
    
    2,389
    
    
    
    4.11
    
    
    
    2,642
    
    
    
    4.43Pennsylvania shares tax
    
    
    3,009
    
    
    
    5.18
    
    
    
    2,765
    
    
    
    4.64Amortization of intangible assets
    
    
    845
    
    
    
    1.45
    
    
    
    882
    
    
    
    1.48Merger expense
    
    
    765
    
    
    
    1.32
    
    
    
    
    
    
    
    Other
    
    
    13,600
    
    
    
    23.41
    
    
    
    15,033
    
    
    
    25.22TOTAL OTHER EXPENSE
    
    $
    58,095
    
    
    
    100.00
    %
    
    $
    59,609
    
    
    
    100.00
    %
  Income Taxes
  Financial Performance  2006 vs. 2005
  Page 13




---



##### 



2006
    
    2005% of Average
    
    
    
    
    
    % of AverageAssets
    
    
    
    
    
    AssetsNet interest income
    
    $
    61,066
    
    
    
    3.22
    %
    
    $
    61,670
    
    
    
    3.09
    %Loan loss provision
    
    
    (3,896
    )
    
    
    (0.21
    )
    
    
    (1,202
    )
    
    
    (0.06
    )Trust fees
    
    
    4,063
    
    
    
    0.21
    
    
    
    4,140
    
    
    
    0.21Deposit service fees
    
    
    10,130
    
    
    
    0.53
    
    
    
    9,344
    
    
    
    0.47Other fees
    
    
    9,511
    
    
    
    0.50
    
    
    
    9,112
    
    
    
    0.46Bank-owned life insurance
    
    
    2,413
    
    
    
    0.13
    
    
    
    2,299
    
    
    
    0.12Security gains
    
    
    389
    
    
    
    0.02
    
    
    
    2,327
    
    
    
    0.12Gain on debt extinguishment
    
    
    
    
    
    
    
    
    
    
    1,043
    
    
    
    0.05Gains on sale of other assets
    
    
    2,380
    
    
    
    0.13
    
    
    
    (376
    )
    
    
    (0.02
    )Total non-interest income
    
    
    28,886
    
    
    
    1.53
    
    
    
    27,889
    
    
    
    1.40Employee expense
    
    
    (29,398
    )
    
    
    (1.55
    )
    
    
    (29,382
    )
    
    
    (1.47
    )Occupancy and equipment
    
    
    (8,889
    )
    
    
    (0.47
    )
    
    
    (8,403
    )
    
    
    (0.42
    )Other non-interest expense
    
    
    (20,440
    )
    
    
    (1.08
    )
    
    
    (20,771
    )
    
    
    (1.04
    )Amortization of Intangibles
    
    
    (882
    )
    
    
    (0.05
    )
    
    
    (825
    )
    
    
    (0.05
    )Total non-interest expense
    
    
    (59,609
    )
    
    
    (3.15
    )
    
    
    (59,381
    )
    
    
    (2.97
    )Income tax expense
    
    
    (5,702
    )
    
    
    (0.30
    )
    
    
    (6,213
    )
    
    
    (0.31
    )Net income from continuing operations
    
    $
    20,745
    
    
    
    1.10
    %
    
    $
    22,763
    
    
    
    1.14
    %Income from discontinued operations, net of tax
    
    $
    446
    
    
    
    0.02
    
    
    $
    112
    
    
    
    0.01Loss on disposal of discontinued operations, net of tax
    
    
    (760
    )
    
    
    (0.04
    )
    
    
    
    
    
    
    (Loss) Income from discontinued operations
    
    $
    (314
    )
    
    
    (0.02
    )%
    
    $
    112
    
    
    
    0.01
    %Net Income
    
    $
    20,431
    
    
    
    1.08
    %
    
    $
    22,875
    
    
    
    1.15
    %Average Assets
    
    $
    1,893,973
    
    
    
    
    
    
    $
    1,997,460
  Page 14




---



##### 



2006
    
    2005
    
    2004
    
    2003
    
    2002Net interest margin
    
    
    3.95
    %
    
    
    3.77
    %
    
    
    3.71
    %
    
    
    4.07
    %
    
    
    4.28
    %Net interest margin, tax-equivalent
    
    
    4.07
    %
    
    
    3.92
    %
    
    
    3.92
    %
    
    
    4.32
    %
    
    
    4.58
    %Yield on earning assets
    
    
    6.14
    %
    
    
    5.58
    %
    
    
    5.06
    %
    
    
    5.36
    %
    
    
    6.10
    %Cost of funds
    
    
    2.18
    %
    
    
    1.80
    %
    
    
    1.35
    %
    
    
    1.29
    %
    
    
    1.81
    %Non interest income to average assets
    
    
    1.47
    %
    
    
    1.35
    %
    
    
    1.38
    %
    
    
    1.34
    %
    
    
    1.26
    %Non interest expenses to average assets
    
    
    3.20
    %
    
    
    3.07
    %
    
    
    3.22
    %
    
    
    3.28
    %
    
    
    3.15
    %Return on average assets
    
    
    1.08
    %
    
    
    1.15
    %
    
    
    1.24
    %
    
    
    1.50
    %
    
    
    1.58
    %Return on average tangible assets
    
    
    1.18
    %
    
    
    1.25
    %
    
    
    1.26
    %
    
    
    1.50
    %
    
    
    1.58
    %Return on average stated equity
    
    
    6.32
    %
    
    
    7.13
    %
    
    
    8.89
    %
    
    
    10.32
    %
    
    
    11.32
    %Return on average tangible equity
    
    
    13.22
    %
    
    
    15.33
    %
    
    
    11.84
    %
    
    
    10.32
    %
    
    
    11.32
    %
  
    
    $3.9 million provision for loan loss related to two large commercial borrowers;
    
    Increase in net interest margin despite a challenging interest rate environment;
    
    Declining earning assets;
    
    The sale of Sentry Trust Company and three branch locations; and
    
    Ongoing expense control.
 Provision for Loan Losses
   Net Interest Income and Margin
   Page 15




---



##### 



Other (Non-Interest) Income
  Page 16




---



##### 



Other (Non-Interest) Expense
   Page 17




---



##### 



Income Taxes
  FINANCIAL CONDITION
 Balance Sheet Summary
     Table 2
 2007
    
    Increase
    
    2006
    
    Increase
    
    2005Average
    
    (Decrease)
    
    Average
    
    (Decrease)
    
    AverageBalance
    
    Amount
    
    %
    
    Balance
    
    Amount
    
    %
    
    BalanceFUNDING USES:Loans
    
    $
    1,079,480
    
    
    $
    (48,568
    )
    
    
    (4.3
    )%
    
    $
    1,128,048
    
    
    $
    (74,559
    )
    
    
    (6.2
    )%
    
    $
    1,202,607Tax-exempt loans
    
    
    55,682
    
    
    
    (3,508
    )
    
    
    (5.9
    )
    
    
    59,190
    
    
    
    (858
    )
    
    
    (1.4
    )
    
    
    60,048Investment securities
    
    
    292,495
    
    
    
    (5,881
    )
    
    
    (2.0
    )
    
    
    298,376
    
    
    
    31,821
    
    
    
    11.9
    
    
    
    266,555Tax-exempt investment securities
    
    
    1,044
    
    
    
    (32,545
    )
    
    
    (96.9
    )
    
    
    33,589
    
    
    
    (32,860
    )
    
    
    (49.5
    )
    
    
    66,449Trading securities
    
    
    54
    
    
    
    (56
    )
    
    
    (50.9
    )
    
    
    110
    
    
    
    (126
    )
    
    
    (53.4
    )
    
    
    236Interest bearing deposits
    
    
    16,263
    
    
    
    3,307
    
    
    
    25.5
    
    
    
    12,956
    
    
    
    (8,681
    )
    
    
    (40.1
    )
    
    
    21,637Federal funds sold
    
    
    14,952
    
    
    
    2,267
    
    
    
    17.9
    
    
    
    12,685
    
    
    
    (4,854
    )
    
    
    (27.7
    )
    
    
    17,539Total interest earning assets
    
    
    1,459,970
    
    
    
    (84,984
    )
    
    
    (5.5
    )
    
    
    1,544,954
    
    
    
    (90,117
    )
    
    
    (5.5
    )
    
    
    1,635,071Non-interest earning assets
    
    
    349,857
    
    
    
    (16,433
    )
    
    
    (4.5
    )
    
    
    366,290
    
    
    
    (9,112
    )
    
    
    (2.4
    )
    
    
    375,402Unrealized gains on investments
    
    
    742
    
    
    
    2,808
    
    
    
    (135.9
    )
    
    
    (2,066
    )
    
    
    (4,348
    )
    
    
    (190.5
    )
    
    
    2,282Less: Allowance for loan losses
    
    
    (14,434
    )
    
    
    771
    
    
    
    (5.1
    )
    
    
    (15,205
    )
    
    
    90
    
    
    
    (0.6
    )
    
    
    (15,295
    )Total uses
    
    $
    1,796,135
    
    
    $
    (97,838
    )
    
    
    (5.2
    )%
    
    $
    1,893,973
    
    
    $
    (103,487
    )
    
    
    (5.2
    )%
    
    $
    1,997,460
 Page 18




---



##### 



2007
    
    Increase
    
    2006
    
    Increase
    
    2005Average
    
    (Decrease)
    
    Average
    
    (Decrease)
    
    AverageBalance
    
    Amount
    
    %
    
    Balance
    
    Amount
    
    %
    
    BalanceFUNDING SOURCES:Interest bearing demand deposits
    
    $
    365,774
    
    
    $
    (29,995
    )
    
    
    (7.6
    )%
    
    $
    395,769
    
    
    $
    (74,523
    )
    
    
    (15.8
    )%
    
    $
    470,292Savings deposits
    
    
    176,068
    
    
    
    (19,212
    )
    
    
    (9.8
    )
    
    
    195,280
    
    
    
    (21,643
    )
    
    
    (10.0
    )
    
    
    216,923Time deposits
    
    
    528,957
    
    
    
    (42,137
    )
    
    
    (7.4
    )
    
    
    571,094
    
    
    
    4,405
    
    
    
    0.8
    
    
    
    566,689Repurchase agreements
    
    
    60,692
    
    
    
    (809
    )
    
    
    (1.3
    )
    
    
    61,501
    
    
    
    12,044
    
    
    
    24.4
    
    
    
    49,457Other borrowed funds
    
    
    91,963
    
    
    
    (5,804
    )
    
    
    (5.9
    )
    
    
    97,767
    
    
    
    (29,842
    )
    
    
    (23.4
    )
    
    
    127,609Total interest bearing liabilities
    
    
    1,223,454
    
    
    
    (97,957
    )
    
    
    (7.4
    )
    
    
    1,321,411
    
    
    
    (109,559
    )
    
    
    (7.7
    )
    
    
    1,430,970Demand deposits
    
    
    228,869
    
    
    
    (6,636
    )
    
    
    (2.8
    )
    
    
    235,505
    
    
    
    4,361
    
    
    
    1.9
    
    
    
    231,144Other Liabilities
    
    
    12,176
    
    
    
    (1,511
    )
    
    
    (11.0
    )
    
    
    13,687
    
    
    
    (1,123
    )
    
    
    (7.6
    )
    
    
    14,810Shareholders equity
    
    
    331,636
    
    
    
    8,266
    
    
    
    2.6
    
    
    
    323,370
    
    
    
    2,834
    
    
    
    0.9
    
    
    
    320,536Total sources
    
    $
    1,796,135
    
    
    $
    (97,838
    )
    
    
    (5.2
    )%
    
    $
    1,893,973
    
    
    $
    (103,487
    )
    
    
    (5.2
    )%
    
    $
    1,997,460
  Loans
   2007
    
    
    2006
    
    
    2005New loans, net of repayments
    
    $
    (40,224
    )
    
    $
    (29,700
    )
    
    $
    (81,413
    )Loans and leases sold
    
    
    (1,116
    )
    
    
    (29,588
    )
    
    
    (30,888
    )Loans charged off
    
    
    (6,429
    )
    
    
    (2,548
    )
    
    
    (1,736
    )Loans transferred to other real estate owned
    
    
    (1,317
    )
    
    
    (818
    )
    
    
    (176
    )Market value amortization
    
    
    (382
    )
    
    
    (55
    )
    
    
    490Other adjustments to carrying value
    
    
    246
    
    
    
    246
    
    
    
    328$
    (49,222
    )
    
    $
    (62,463
    )
    
    $
    (113,395
    )
  
    
    Scheduled loan maturities and repayments;
    
    Pay off of some non-performing loans;
    
    Charge of approximately $6.0 million in commercial loans, including $4.4 million
of loans to one commercial borrower;
    
    Reduced new loan originations of commercial and residential loans;
    
    The above decreases were offset by modest increases in commercial real estate and
home equity loans; and
    
    New loan production in all categories was limited in 2007 due to the aggressive
level of competition in both pricing and credit standards in Omegas market areas.
  Page 19




---



##### 



Allowance for Loan Losses
  
 2007
    
    
    2006Allowance for loan loss, beginning of period
    
    $
    17,344
    
    
    $
    15,482Provision
    
    
    2,155
    
    
    
    3,896Allocated to assets held for sale
    
    
    
    
    
    
    (136
    )Reclassification of off balance sheet liability
    
    
    (184
    )Net charge-offs
    
    
    (6,429
    )
    
    
    (1,898
    )Allowance for loan loss, end of period
    
    
    12,886
    
    
    
    17,344Change in allowance for loan losses
    
    $
    (4,458
    )
    
    $
    1,862
   Page 20




---



##### 



Table 3
  December 31,2007
    
    2006
    
    2005
    
    2004
    
    2003Non-accrual loans
    
    $
    21,510
    
    
    $
    21,001
    
    
    $
    6,562
    
    
    $
    5,220
    
    
    $
    2,588Accruing loans past due 90 days or more
    
    
    6,891
    
    
    
    2,327
    
    
    
    2,616
    
    
    
    2,667
    
    
    
    607Restructured Loans
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    220
    
    
    
    223Total non-performing loans
    
    $
    28,401
    
    
    $
    23,328
    
    
    $
    9,178
    
    
    $
    8,107
    
    
    $
    3,418
    
    
    Historical trends:Average historical net charge-offs, over a five-year period, 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 as part of managements estimate of inherent probable loss.
    
    Individual loan performance:Management identifies and maintains a list of its 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 or the credit has
deteriorated 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.
    
    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.
    
    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:
 o
    
    Credit concentration: Omegas loans are classified in accordance with the
North American Industry Classification System (NAICS). Any groups total that
exceeds 25% of Omegas risk based capital is considered to be a credit
concentration, and as such, is determined to have an additional level of associated
risk;o
    
    Changes in loan volumes;o
    
    Delinquency and non-accrual trends; ando
    
    Policy and procedure changes.
 Page 21




---



##### 



Allocation of the Allowance for Loan Losses2007
    
    2006
    
    2005
    
    2004
    
    2003Commercial, financial and agricultural
    
    $
    5,194
    
    
    $
    7,109
    
    
    $
    5,983
    
    
    $
    6,048
    
    
    $
    3,954Real estatecommercial
    
    
    5,270
    
    
    
    7,326
    
    
    
    4,624
    
    
    
    4,073
    
    
    
    3,486Real estateconstruction
    
    
    286
    
    
    
    322
    
    
    
    219
    
    
    
    206
    
    
    
    181Real estatemortgage
    
    
    486
    
    
    
    980
    
    
    
    1,420
    
    
    
    1,725
    
    
    
    1,264Home equity
    
    
    679
    
    
    
    723
    
    
    
    1,504
    
    
    
    1,309
    
    
    
    998Personal
    
    
    867
    
    
    
    800
    
    
    
    1,586
    
    
    
    2,155
    
    
    
    685Lease financing
    
    
    104
    
    
    
    84
    
    
    
    146
    
    
    
    128
    
    
    
    1Total Allowance for Loan Losses
    
    $
    12,886
    
    
    $
    17,344
    
    
    $
    15,482
    
    
    $
    15,644
    
    
    $
    10,569
 Percent of Loan Type to Total Loans2007
    
    2006
    
    2005
    
    2004
    
    2003Commercial, financial and agricultural
    
    
    18.7
    %
    
    
    21.8
    %
    
    
    22.3
    %
    
    
    20.5
    %
    
    
    14.1
    %Real estatecommercial
    
    
    39.8
    %
    
    
    37.5
    %
    
    
    38.4
    %
    
    
    37.7
    %
    
    
    43.0
    %Real estateconstruction
    
    
    2.3
    %
    
    
    1.9
    %
    
    
    1.8
    %
    
    
    1.9
    %
    
    
    2.2
    %Real estatemortgage
    
    
    17.7
    %
    
    
    18.9
    %
    
    
    20.0
    %
    
    
    20.9
    %
    
    
    25.1
    %Home equity
    
    
    15.4
    %
    
    
    14.3
    %
    
    
    11.3
    %
    
    
    10.0
    %
    
    
    11.5
    %Personal
    
    
    3.7
    %
    
    
    4.0
    %
    
    
    5.2
    %
    
    
    8.1
    %
    
    
    4.1
    %Lease financing
    
    
    2.4
    %
    
    
    1.6
    %
    
    
    1.0
    %
    
    
    0.9
    %
    
    
    0.0
    %Total Allowance for Loan Losses
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
  Page 22




---



##### 



Investments
   2007
    
    2006
    
    2005
    
    2004Purchases of investment securities
    
    $
    124,129
    
    
    $
    95,053
    
    
    $
    147,487
    
    
    $
    112,733Sales and maturities of investment securities
    
    
    (143,142
    )
    
    
    (146,134
    )
    
    
    (113,278
    )
    
    
    (234,148
    )Adjustment in market value of AFS securities
    
    
    3,291
    
    
    
    2,367
    
    
    
    (7,310
    )
    
    
    (2,590
    )Amortization/Accretion
    
    
    469
    
    
    
    (747
    )
    
    
    (1,523
    )
    
    
    (1,946
    )Trading account, net change
    
    
    13
    
    
    
    (420
    )
    
    
    468
    
    
    
    Federal funds sold, net change
    
    
    41,750
    
    
    
    
    
    
    
    (36,350
    )
    
    
    18,500Interest bearing deposits with others, net change
    
    
    (600
    )
    
    
    3,165
    
    
    
    (22,214
    )
    
    
    18,118$
    25,910
    
    
    $
    (46,716
    )
    
    $
    (32,720
    )
    
    $
    (89,333
    )
   Non-interest earning assets
  Page 23




---



##### 



2007
    
    2006
    
    2005Cash and due from banks
    
    $
    2,721
    
    
    $
    31
    
    
    $
    8,317Premises and equipment, net
    
    
    (1,754
    )
    
    
    (7,530
    )
    
    
    2,882Other real estate owned
    
    
    912
    
    
    
    (444
    )
    
    
    (2,126
    )Bank-owned life insurance
    
    
    (558
    )
    
    
    1,197
    
    
    
    2,299Investment in limited partnerships
    
    
    (763
    )
    
    
    (849
    )
    
    
    (1,993
    )Intangible assets
    
    
    (846
    )
    
    
    (2,532
    )
    
    
    (7,468
    )Goodwill
    
    
    180
    
    
    
    (1,617
    )
    
    
    4,045Other receivables and prepaid expenses
    
    
    (3,297
    )
    
    
    (18,721
    )
    
    
    (2,595
    )Net change in non-earning assets
    
    $
    (3,405
    )
    
    $
    (30,465
    )
    
    $
    3,361
 Deposits
   2007
    
    2006
    
    2005Demand deposits
    
    $
    3,613
    
    
    $
    (4,348
    )
    
    $
    8,275Interest bearing demand deposits
    
    
    (21,528
    )
    
    
    (46,888
    )
    
    
    (59,701
    )Savings deposits
    
    
    (9,310
    )
    
    
    (27,407
    )
    
    
    (13,296
    )Time deposits, $100,000 and greater
    
    
    (665
    )
    
    
    (1,857
    )
    
    
    (7,837
    )Time deposits, other
    
    
    (17,004
    )
    
    
    (16,267
    )
    
    
    (6,993
    )Net change in deposits
    
    $
    (44,894
    )
    
    $
    (96,767
    )
    
    $
    (79,552
    )
  Demand deposits
    
    $
    3,334Interest bearing demand deposits
    
    
    3,919Savings deposits
    
    
    3,274Time deposits, $100,000 and greater
    
    
    3,076Time deposits, other
    
    
    19,482$
    33,085
  Page 24




---



##### 



Table 4
 2007
    
    
    
    
    
    
    
    
    
    2006
    
    
    
    
    
    
    
    
    
    2005Average
    
    Increase(Decrease)
    
    Average
    
    Increase(Decrease)
    
    AverageBalance
    
    Amount
    
    %
    
    Balance
    
    Amount
    
    %
    
    BalanceInterest bearing demand deposits
    
    $
    365,774
    
    
    $
    (29,995
    )
    
    
    (7.6
    )%
    
    $
    395,769
    
    
    $
    (74,523
    )
    
    
    (15.8
    )%
    
    $
    470,292Savings deposits
    
    
    176,068
    
    
    
    (19,212
    )
    
    
    (9.8
    )
    
    
    195,280
    
    
    
    (21,643
    )
    
    
    (10.0
    )
    
    
    216,923Demand deposits
    
    
    228,869
    
    
    
    (6,636
    )
    
    
    (2.8
    )
    
    
    235,505
    
    
    
    4,361
    
    
    
    1.9
    
    
    
    231,144Total core (transaction) accounts
    
    
    770,711
    
    
    
    (55,843
    )
    
    
    (6.8
    )
    
    
    826,554
    
    
    
    (91,805
    )
    
    
    (10.0
    )
    
    
    918,359Time deposits, $100,000 and greater
    
    
    88,960
    
    
    
    (8,398
    )
    
    
    (8.6
    )
    
    
    97,358
    
    
    
    556
    
    
    
    0.6
    
    
    
    96,802Time deposits, other
    
    
    439,997
    
    
    
    (33,739
    )
    
    
    (7.1
    )
    
    
    473,736
    
    
    
    3,849
    
    
    
    0.8
    
    
    
    469,887Total time deposits
    
    
    528,957
    
    
    
    (42,137
    )
    
    
    (7.4
    )
    
    
    571,094
    
    
    
    4,405
    
    
    
    0.8
    
    
    
    566,689Total deposits
    
    $
    1,299,668
    
    
    $
    (97,980
    )
    
    
    (7.0
    )%
    
    $
    1,397,648
    
    
    $
    (87,400
    )
    
    
    (5.9
    )%
    
    $
    1,485,048
 Other Interest Bearing Liabilities
  Page 25




---



##### 



Shareholders Equity
  2007
    
    2006
    
    2005Net income
    
    $
    21,097
    
    
    $
    20,431
    
    
    $
    22,875Dividends
    
    
    (15,674
    )
    
    
    (15,639
    )
    
    
    (15,651
    )Stock options exercised
    
    
    1,985
    
    
    
    4,040
    
    
    
    1,904Repurchase of stock
    
    
    (960
    )
    
    
    (4,194
    )
    
    
    (1,984
    )Net change in unrealized security gains, net of tax.
    
    
    2,140
    
    
    
    1,539
    
    
    
    (4,752
    )Amortization of unearned compensation
    
    
    859
    
    
    
    266
    
    
    
    249Other
    
    
    91
    
    
    
    278
    
    
    
    110Net change in Shareholders Equity
    
    $
    9,538
    
    
    $
    6,721
    
    
    $
    2,751
      MARKET RISK
  Page 26




---



##### 



Net Interest Income and Interest Rate Risk
     ($ in thousands)
 Change in
    
    Change
    
    
    
    
    
    Change
    
    Total ChangeInterest
    
    Due to Re-
    
    Change
    
    Due to
    
    Due toRates (Basis
    
    Pricing
    
    Due to
    
    Customer
    
    Interest RatePoints)
    
    Risk
    
    Basis Risk
    
    Options
    
    Risk300
    
    
    $
    1,093
    
    
    $
    (18
    )
    
    $
    42
    
    
    $
    1,117200
    
    
    
    767
    
    
    
    (38
    )
    
    
    29
    
    
    
    758100
    
    
    
    361
    
    
    
    3
    
    
    
    16
    
    
    
    3800
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0-100
    
    
    
    (366
    )
    
    
    (3
    )
    
    
    (35
    )
    
    
    (404
    )-200
    
    
    
    (761
    )
    
    
    (5
    )
    
    
    (86
    )
    
    
    (852
    )-300
    
    
    
    (1,151
    )
    
    
    (7
    )
    
    
    (123
    )
    
    
    (1,281
    )
   Page 27




---



##### 



($ in thousands)
 Change in
    
    Change
    
    
    
    
    
    Change
    
    Total ChangeInterest
    
    Due to
    
    Change
    
    Due to
    
    Due toRates (Basis
    
    Repricing
    
    Due to
    
    Customer
    
    Interest RatePoints)
    
    Risk
    
    Basis Risk
    
    Options
    
    Risk300
    
    
    $
    (30,213
    )
    
    $
    31,873
    
    
    $
    3,047
    
    
    $
    4,707200
    
    
    
    (20,597
    )
    
    
    22,088
    
    
    
    2,179
    
    
    
    3,670100
    
    
    
    (10,308
    )
    
    
    11,480
    
    
    
    1,047
    
    
    
    2,2190
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0-100
    
    
    
    12,547
    
    
    
    (12,402
    )
    
    
    (3,697
    )
    
    
    (3,552
    )-200
    
    
    
    25,262
    
    
    
    (25,775
    )
    
    
    (7,404
    )
    
    
    (7,917
    )-300
    
    
    
    38,952
    
    
    
    (40,167
    )
    
    
    (10,901
    )
    
    
    (12,116
    )
 Repricing Risk
 .
   Basis Risk
  Page 28




---



##### 



($ in thousands)
 Change inInterest Rates
    
    Change Due to
    
    Change Due to
    
    Change Due to(Basis Points)
    
    Prime Basis Risk
    
    Treasury Basis Risk
    
    Total Basis Risk300
    
    
    $
    7,022
    
    
    
    ($7,040
    )
    
    $
    (18
    )200
    
    
    
    4,681
    
    
    
    (4,719
    )
    
    
    (38
    )100
    
    
    
    2,340
    
    
    
    (2,337
    )
    
    
    30
    
    
    
    0
    
    
    
    0
    
    
    
    0-100
    
    
    
    (2,340
    )
    
    
    2,337
    
    
    
    (3
    )-200
    
    
    
    (4,681
    )
    
    
    4,676
    
    
    
    (5
    )-300
    
    
    
    (7,021
    )
    
    
    7,014
    
    
    
    (7
    )
  ($ in thousands)
 Change inInterest Rates
    
    Change Due to
    
    Change Due to
    
    Change Due to(Basis Points)
    
    Prime Basis Risk
    
    Treasury Basis Risk
    
    Total Basis Risk300
    
    
    $
    (16,902
    )
    
    $
    48,775
    
    
    $
    31,873200
    
    
    
    (11,510
    )
    
    
    33,598
    
    
    
    22,088100
    
    
    
    (5,882
    )
    
    
    17,362
    
    
    
    11,4800
    
    
    
    0
    
    
    
    0
    
    
    
    0-100
    
    
    
    6,153
    
    
    
    (18,555
    )
    
    
    (12,402
    )-200
    
    
    
    12,597
    
    
    
    (38,372
    )
    
    
    (25,775
    )-300
    
    
    
    19,352
    
    
    
    (59,519
    )
    
    
    (40,167
    )
 Customer Option Risk
  Page 29




---



##### 



Liquidity and Capital Resources
               Page 30




---



##### 



Off-Balance Sheet Arrangements, Contractual Obligations and Commitments
 Off-Balance Sheet Arrangements 
 Contractual Obligations 
 Payments Due inNote
    
    
    
    
    
    Less Than
    
    One to
    
    Three to
    
    More ThanReference
    
    Total
    
    One Year
    
    Three Years
    
    Five Years
    
    Five YearsCertificates of deposits (a)
    
    
    9
    
    
    $
    548,853
    
    
    $
    409,045
    
    
    $
    94,512
    
    
    $
    45,166
    
    
    $
    130Other deposits (b)
    
    
    
    
    
    
    692,648
    
    
    
    692,648
    
    
    
    
    
    
    
    
    
    
    
    Other interest-bearing liabilities
    
    
    
    
    
    
    843
    
    
    
    843Federal funds borrowed and 
security
repurchase agreements (a)
    
    
    10
    
    
    
    73,455
    
    
    
    73,455
    
    
    
    
    
    
    
    
    
    
    
    Borrowed funds (a)
    
    
    10
    
    
    
    5,042
    
    
    
    5,042
    
    
    
    
    
    
    
    
    
    
    
    Junior subordinated debentures (a)
    
    
    11
    
    
    
    153,753
    
    
    
    3,955
    
    
    
    7,909
    
    
    
    7,909
    
    
    
    133,980Long-term debt (a)
    
    
    10
    
    
    
    29,336
    
    
    
    2,798
    
    
    
    24,780
    
    
    
    1,668
    
    
    
    90Operating lease obligations
    
    
    12
    
    
    
    1,654
    
    
    
    504
    
    
    
    515
    
    
    
    171
    
    
    
    464Supplemental executive retirement plan
    
    
    18
    
    
    
    4,352
    
    
    
    282
    
    
    
    670
    
    
    
    666
    
    
    
    2,734Purchase obligations
third party data processor contract
    
    
    22
    
    
    
    10,712
    
    
    
    2,472
    
    
    
    4,944
    
    
    
    3,296
    
    
    
    Total
    
    
    
    
    
    $
    1,520,648
    
    
    $
    1,191,044
    
    
    $
    133,330
    
    
    $
    58,876
    
    
    $
    137,398
 
 (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, 2006. 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 Page 31




---



##### 



Table 5   (In thousands)
 Over Three
    
    
    Over Six
    
    
    Over OneThree
    
    
    Months But
    
    
    Months But
    
    
    Year But
    
    
    OverMonths
    
    
    Within Six
    
    
    Within One
    
    
    Within Five
    
    
    Fiveor Less
    
    
    Months
    
    
    Year
    
    
    Years
    
    
    Years
    
    
    TotalInterest Earning AssetsInterest-bearing deposits
    
    $
    11,373
    
    
    $
    100
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    11,473Federal funds sold
    
    
    41,750
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    41,750Investment securities:U.S. Treasury securities and obligations of other
U.S. Government agencies and corporations
    
    
    12,972
    
    
    
    22,317
    
    
    
    16,384
    
    
    
    128,458
    
    
    
    
    
    
    
    180,131Obligations of state and political subdivisions
    
    
    
    
    
    
    398
    
    
    
    461
    
    
    
    2,405
    
    
    
    
    
    
    
    3,264Corporate and other securities
    
    
    686
    
    
    
    611
    
    
    
    753
    
    
    
    360
    
    
    
    192
    
    
    
    2,602Mortgage-backed securities
    
    
    5,559
    
    
    
    5,629
    
    
    
    11,455
    
    
    
    60,352
    
    
    
    
    
    
    
    82,995Stocks
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19,649
    
    
    
    19,649Investment in unconsolidated subsidiary
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,625
    
    
    
    1,625Trading account assets
    
    
    61
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    61Loans:Commercial, financial, and agricultural
    
    
    101,349
    
    
    
    18,405
    
    
    
    20,055
    
    
    
    60,169
    
    
    
    6,452
    
    
    
    206,430Interest rate swap agreements (notional value)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Real estate  commercial
    
    
    128,349
    
    
    
    24,094
    
    
    
    43,803
    
    
    
    210,546
    
    
    
    32,245
    
    
    
    439,037Real estate  construction
    
    
    18,455
    
    
    
    976
    
    
    
    1,541
    
    
    
    1,555
    
    
    
    3,074
    
    
    
    25,601Real estate  mortgage
    
    
    7,127
    
    
    
    8,030
    
    
    
    17,790
    
    
    
    100,694
    
    
    
    61,999
    
    
    
    195,640Home equity
    
    
    33,308
    
    
    
    4,043
    
    
    
    8,040
    
    
    
    59,229
    
    
    
    65,294
    
    
    
    169,914Personal (net of unearned discount)
    
    
    13,568
    
    
    
    3,257
    
    
    
    5,680
    
    
    
    16,894
    
    
    
    742
    
    
    
    40,141Lease financing (net of unearned interest)
    
    
    45
    
    
    
    113
    
    
    
    612
    
    
    
    25,352
    
    
    
    285
    
    
    
    26,407Total Interest Earning Assets
    
    
    374,602
    
    
    
    87,973
    
    
    
    126,574
    
    
    
    666,014
    
    
    
    191,557
    
    
    
    1,446,720Interest Bearing LiabilitiesDemand deposits
    
    
    148,695
    
    
    
    
    
    
    
    
    
    
    
    202,780
    
    
    
    
    
    
    
    351,475Savings deposits
    
    
    66,215
    
    
    
    
    
    
    
    34,738
    
    
    
    66,215
    
    
    
    
    
    
    
    167,168Certificates of deposit over $100,000
    
    
    26,211
    
    
    
    17,891
    
    
    
    29,678
    
    
    
    18,646
    
    
    
    
    
    
    
    92,426Time deposits
    
    
    109,103
    
    
    
    92,014
    
    
    
    128,528
    
    
    
    104,083
    
    
    
    124
    
    
    
    433,852Short-term borrowings
    
    
    73,449
    
    
    
    5,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    78,449Junior subordinated debt
    
    
    124
    
    
    
    125
    
    
    
    249
    
    
    
    38,186
    
    
    
    17,011
    
    
    
    55,695Long-term debt
    
    
    375
    
    
    
    381
    
    
    
    780
    
    
    
    24,819
    
    
    
    79
    
    
    
    26,434Other interest bearing liabilities
    
    
    843
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    843Total Interest Bearing Liabilities
    
    
    425,015
    
    
    
    115,411
    
    
    
    193,973
    
    
    
    454,729
    
    
    
    17,214
    
    
    
    1,206,342Gap
    
    $
    (50,413
    )
    
    $
    (27,438
    )
    
    $
    (67,399
    )
    
    $
    211,285
    
    
    $
    174,343
    
    
    $
    240,378Cumulative Gap
    
    $
    (50,413
    )
    
    $
    (77,851
    )
    
    $
    (145,250
    )
    
    $
    66,035
    
    
    $
    240,378Cumulative sensitivity ratio
    
    
    0.88
    
    
    
    0.86
    
    
    
    0.80
    
    
    
    1.06
    
    
    
    1.20Commercial, financial and agricultural
loans maturing after one year with:Fixed interest rates
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    28,149
    
    
    $
    6,452
    
    
    $
    34,601Variable interest rates
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    32,020
    
    
    
    
    
    
    
    32,020Total
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    60,169
    
    
    $
    6,452
    
    
    $
    66,621
 Page 32




---



##### 



Report of Independent Registered Public Accounting Firm
Report on Consolidated Financial Statements
 
    Share Based Payment
   
 Page 33




---



##### 



Report of Independent Registered Public Accounting Firm
Report on Effectiveness of Internal Control Over Financial Reporting
         
 Page 34




---



##### 



Report of Management on Internal Control
Over Financial Reporting
    /s/ Donita R. Koval
    
    /s/ Daniel L. WarfelDonita R. Koval
    
    Daniel L. WarfelPresident and Chief Executive Officer
    
    Executive Vice President and Chief Financial OfficerState College, PennsylvaniaMarch 12, 2008
 Page 35




---



##### 



December 31,2007
    
    
    2006ASSETSCash and due from banks
    
    $
    58,946
    
    
    $
    56,225Interest bearing deposits with other banks
    
    
    11,473
    
    
    
    12,073Federal funds sold
    
    
    41,750
    
    
    
    Trading securities
    
    
    61
    
    
    
    48Investment securities available for sale
    
    
    276,525
    
    
    
    291,807Other investments
    
    
    12,116
    
    
    
    12,087Investment in unconsolidated subsidiary
    
    
    1,625
    
    
    
    1,625Loans held for sale
    
    
    414
    
    
    
    204Total portfolio loans
    
    
    1,102,756
    
    
    
    1,152,188Less: Allowance for loan losses
    
    
    (12,886
    )
    
    
    (17,344
    )Net portfolio loans
    
    
    1,089,870
    
    
    
    1,134,844Premises and equipment, net
    
    
    29,107
    
    
    
    30,861Other real estate owned
    
    
    1,424
    
    
    
    512Bank-owned life insurance
    
    
    75,783
    
    
    
    76,341Investment in limited partnerships
    
    
    5,000
    
    
    
    5,763Core deposit intangibles
    
    
    4,905
    
    
    
    5,641Other intangibles
    
    
    975
    
    
    
    1,085Goodwill
    
    
    159,567
    
    
    
    159,387Other assets
    
    
    19,559
    
    
    
    27,315TOTAL ASSETS
    
    $
    1,789,100
    
    
    $
    1,815,818LIABILITIES AND SHAREHOLDERS EQUITYDeposits:Non-interest bearing
    
    $
    235,948
    
    
    $
    232,335Interest bearing
    
    
    1,044,921
    
    
    
    1,093,428Total deposits
    
    
    1,280,869
    
    
    
    1,325,763Short-term borrowings
    
    
    78,449
    
    
    
    65,712ESOP debt
    
    
    
    
    
    
    1,481Junior subordinated debentures
    
    
    55,695
    
    
    
    56,193Long-term debt
    
    
    26,434
    
    
    
    27,877Other interest bearing liabilities
    
    
    843
    
    
    
    858Other liabilities
    
    
    12,061
    
    
    
    12,723TOTAL LIABILITIES
    
    
    1,454,351
    
    
    
    1,490,607Shareholders EquityPreferred stock, par value $5.00 per share:Authorized - 5,000,000 shares, none issuedCommon stock, par value $5.00 per share:Authorized - 25,000,000 shares; Issued -12,900,229 shares at December 31, 2007;12,823,471 shares at December 31, 2006;
    
    
    64,517
    
    
    
    64,133Outstanding -12,665,613 shares at December 31, 2007;12,622,802 shares at December 31, 2006;Capital surplus
    
    
    104,750
    
    
    
    103,149Retained earnings
    
    
    170,167
    
    
    
    164,653Accumulated other comprehensive income
    
    
    2,453
    
    
    
    313Unearned compensation related to ESOP debt
    
    
    
    
    
    
    (859
    )Cost of common stock in treasury:234,616 shares at December 31, 2007;
    
    
    (7,138
    )200,669 shares at December 31, 2006;
    
    
    
    
    
    
    (6,178
    )TOTAL SHAREHOLDERS EQUITY
    
    
    334,749
    
    
    
    325,211TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
    
    $
    1,789,100
    
    
    $
    1,815,818
  Page 36




---



##### 



December 31,2007
    
    
    2006
    
    
    2005INTEREST INCOME:Interest and fees on loans
    
    $
    78,914
    
    
    $
    81,103
    
    
    $
    78,907Interest and dividends on investment securities
    
    
    13,686
    
    
    
    12,518
    
    
    
    11,231Other interest income
    
    
    1,378
    
    
    
    1,166
    
    
    
    1,037TOTAL INTEREST INCOME
    
    
    93,978
    
    
    
    94,787
    
    
    
    91,175INTEREST EXPENSE:Interest on deposits
    
    
    26,593
    
    
    
    25,966
    
    
    
    21,691Interest on short-term borrowings
    
    
    2,536
    
    
    
    2,731
    
    
    
    2,336Interest on long-term debt and
other interest bearing liabilities
    
    
    5,024
    
    
    
    5,024
    
    
    
    5,478TOTAL INTEREST EXPENSE
    
    
    34,153
    
    
    
    33,721
    
    
    
    29,505NET INTEREST INCOME
    
    
    59,825
    
    
    
    61,066
    
    
    
    61,670Provision for loan losses
    
    
    2,155
    
    
    
    3,896
    
    
    
    1,202INCOME FROM CREDIT ACTIVITIES
    
    
    57,670
    
    
    
    57,170
    
    
    
    60,468OTHER INCOME:Service fees on deposit accounts
    
    
    10,410
    
    
    
    10,130
    
    
    
    9,344Service fees on loans
    
    
    1,499
    
    
    
    1,635
    
    
    
    1,380Earnings on bank-owned life insurance
    
    
    2,556
    
    
    
    2,413
    
    
    
    2,299Trust fees
    
    
    4,312
    
    
    
    4,063
    
    
    
    4,140Investment and insurance product sales
    
    
    2,868
    
    
    
    2,942
    
    
    
    3,051Gain on the early extinguishment of debt
    
    
    
    
    
    
    
    
    
    
    1,043Gain (loss) on sale of loans and other assets
    
    
    39
    
    
    
    2,380
    
    
    
    (376
    )Net gains on the sale of investment securities
    
    
    632
    
    
    
    389
    
    
    
    2,327Other
    
    
    5,766
    
    
    
    4,934
    
    
    
    4,681TOTAL OTHER INCOME
    
    
    28,082
    
    
    
    28,886
    
    
    
    27,889OTHER EXPENSE:Salaries and employee benefits
    
    
    28,667
    
    
    
    29,398
    
    
    
    29,382Net occupancy expense
    
    
    4,266
    
    
    
    4,318
    
    
    
    4,208Equipment expense
    
    
    4,554
    
    
    
    4,571
    
    
    
    4,195Data processing service
    
    
    2,389
    
    
    
    2,642
    
    
    
    2,521Pennsylvania shares tax
    
    
    3,009
    
    
    
    2,765
    
    
    
    1,780Amortization of intangible assets
    
    
    845
    
    
    
    882
    
    
    
    825Merger expense
    
    
    765
    
    
    
    
    
    
    
    Other
    
    
    13,600
    
    
    
    15,033
    
    
    
    16,470TOTAL OTHER EXPENSE
    
    
    58,095
    
    
    
    59,609
    
    
    
    59,381Income before income taxes and discontinued operations
    
    
    27,657
    
    
    
    26,447
    
    
    
    28,976Income tax expense
    
    
    6,560
    
    
    
    5,702
    
    
    
    6,213Income from continuing operations
    
    
    21,097
    
    
    
    20,745
    
    
    
    22,763DISCONTINUED OPERATIONS:Income from discontinued operations, net of tax
    
    
    
    
    
    
    446
    
    
    
    112Loss on disposal of discontinued operations, net of tax
    
    
    
    
    
    
    (760
    )
    
    
    Loss from discontinued operations
    
    
    
    
    
    
    (314
    )
    
    
    112NET INCOME
    
    $
    21,097
    
    
    $
    20,431
    
    
    $
    22,875Net income per common shareBasic
    
    $
    1.67
    
    
    $
    1.62
    
    
    $
    1.82Diluted
    
    $
    1.67
    
    
    $
    1.62
    
    
    $
    1.81Net income per common share from continuing operationsBasic
    
    $
    1.67
    
    
    $
    1.65
    
    
    $
    1.81Diluted
    
    $
    1.67
    
    
    $
    1.65
    
    
    $
    1.80
 Page 37




---



##### 



December 31,2007
    
    
    2006
    
    
    2005Net income (loss) per common share from discontinued operationsBasic
    
    $
    0.00
    
    
    
    ($0.02
    )
    
    $
    0.01Diluted
    
    $
    0.00
    
    
    
    ($0.02
    )
    
    $
    0.01Weighted average shares and equivalentsBasic
    
    
    12,631
    
    
    
    12,577
    
    
    
    12,601Diluted
    
    
    12,643
    
    
    
    12,610
    
    
    
    12,645Dividends declared per share
Common
    
    $
    1.24
    
    
    $
    1.24
    
    
    $
    1.24
  Page 38




---



##### 



Years Ended December 31, 2005 and 2006, 2007Accumulated
    
    
    
    
    
    Cost ofOther
    
    Unearned
    
    CommonCommon
    
    Capital
    
    Retained
    
    Comprehensive
    
    Compen-
    
    Stock InStock
    
    Surplus
    
    Earnings
    
    Income
    
    sation
    
    Treasury
    
    TotalBalance at December 31, 2004
    
    $
    62,968
    
    
    $
    98,370
    
    
    $
    152,249
    
    
    $
    3,526
    
    
    $
    (1,374
    )
    
    $
    
    
    
    $
    315,739Comprehensive income:Net
income
    
    
    
    
    
    
    
    
    
    
    22,875Change in unrealized securities gains, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,752
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    18,123Common dividends declared  $1.24 per share
    
    
    
    
    
    
    
    
    
    
    (15,651
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (15,651
    )Amortization of unearned compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    249
    
    
    
    
    
    
    
    249Tax benefit from employee stock options
    
    
    
    
    
    
    
    
    
    
    70
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    70Tax benefit from dividends 
paid to ESOP on 

unallocated common stock
    
    
    
    
    
    
    
    
    
    
    40
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    40Purchase of treasury stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,864
    )
    
    
    (1,864
    )Employer stock held in Rabbi Trusts
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (120
    )
    
    
    (120
    )Exercised employee stock options
    
    
    400
    
    
    
    1,504
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,904Balance at December 31, 2005
    
    
    63,368
    
    
    
    99,874
    
    
    
    159,583
    
    
    
    (1,226
    )
    
    
    (1,125
    )
    
    
    (1,984
    )
    
    
    318,490Comprehensive income:Net
income
    
    
    
    
    
    
    
    
    
    
    20,431Change in unrealized securities gains, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,539Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    21,970Common dividends 
declared  $1.24 per share
    
    
    
    
    
    
    
    
    
    
    (15,639
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (15,639
    )Amortization of unearned compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    266
    
    
    
    
    
    
    
    266Tax benefit from employee stock options
    
    
    
    
    
    
    
    
    
    
    245
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    245Tax benefit from dividends 
paid to ESOP on 

unallocated common stock
    
    
    
    
    
    
    
    
    
    
    33
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    33Purchase of treasury stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,194
    )
    
    
    (4,194
    )Exercised employee stock options
    
    
    765
    
    
    
    3,275
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,040Balance at December 31, 2006
    
    
    64,133
    
    
    
    103,149
    
    
    
    164,653
    
    
    
    313
    
    
    
    (859
    )
    
    
    (6,178
    )
    
    
    325,211Comprehensive income:Net
income
    
    
    
    
    
    
    
    
    
    
    21,097Change in unrealized securities gains, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,140Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    23,237Common dividends declared  $1.24 per share
    
    
    
    
    
    
    
    
    
    
    (15,674
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (15,674
    )Amortization of unearned compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    859
    
    
    
    
    
    
    
    859Tax benefit from employee stock options
    
    
    
    
    
    
    
    
    
    
    101
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    101Tax benefit from dividends paid to ESOP on
unallocated common stock
    
    
    
    
    
    
    
    
    
    
    19
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19Cumulative effect of change in accounting from
adoption of FIN 48
    
    
    
    
    
    
    
    
    
    
    (29
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (29
    )Purchase of treasury stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (953
    )
    
    
    (953
    )Employer stock held in Rabbi Trusts
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7
    )
    
    
    (7
    )Exercised employee stock options
    
    
    384
    
    
    
    1,601
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,985Balance at December 31, 2007
    
    $
    64,517
    
    
    $
    104,750
    
    
    $
    170,167
    
    
    $
    2,453
    
    
    $
    
    
    
    $
    (7,138
    )
    
    $
    334,749
  Page 39




---



##### 



Years Ended December 31,2007
    
    
    2006
    
    
    2005Cash flows from operating activities:Net income
    
    $
    21,097
    
    
    $
    20,431
    
    
    $
    22,875Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization
    
    
    4,457
    
    
    
    5,919
    
    
    
    4,360Provision for loan losses and off-balance sheet reserve
    
    
    2,207
    
    
    
    3,854
    
    
    
    1,171Gain on sale of investment securities
    
    
    (288
    )
    
    
    (394
    )
    
    
    (2,327
    )Gain on early extinguishment of debt
    
    
    
    
    
    
    
    
    
    
    (1,043
    )Non-monetary gift
    
    
    
    
    
    
    16
    
    
    
    45Gain on sale of fixed assets and other property owned
    
    
    (123
    )
    
    
    (3,745
    )
    
    
    (13
    )(Gain) loss on sale of loans and leases
    
    
    84
    
    
    
    (16
    )
    
    
    415Provision for deferred income tax
    
    
    2,143
    
    
    
    495
    
    
    
    2,022Increase in cash surrender value of bank owned life insurance
    
    
    (2,542
    )
    
    
    (2,414
    )
    
    
    (2,299
    )Decrease in interest receivable and other assets
    
    
    2,187
    
    
    
    196
    
    
    
    5,321Increase (decrease) in interest payable
    
    
    (139
    )
    
    
    185
    
    
    
    54Increase in taxes payable
    
    
    2,232
    
    
    
    332
    
    
    
    411Amortization of deferred net loan fees
    
    
    274
    
    
    
    396
    
    
    
    (307
    )Deferral of net loan fees
    
    
    (520
    )
    
    
    (642
    )
    
    
    268Decrease in accounts payable and accrued expenses
    
    
    (848
    )
    
    
    (694
    )
    
    
    (2,223
    )Total adjustments
    
    
    9,124
    
    
    
    3,488
    
    
    
    5,855Net cash provided by operating activities
    
    
    30,221
    
    
    
    23,919
    
    
    
    28,730Cash flows from investing activities:Investment securities available for sale:Proceeds from sales
    
    
    492
    
    
    
    33,514
    
    
    
    60,854Proceeds from maturities
    
    
    142,939
    
    
    
    113,005
    
    
    
    54,507Cash used for purchases
    
    
    (124,129
    )
    
    
    (95,053
    )
    
    
    (147,487
    )Proceeds from sale of trading securities
    
    
    
    
    
    
    435
    
    
    
    (Increase) decrease in interest bearing deposits with other banks
    
    
    600
    
    
    
    (3,165
    )
    
    
    22,214Decrease in loans and leases
    
    
    40,224
    
    
    
    30,359
    
    
    
    82,387Gross proceeds from sale of loans and leases
    
    
    1,032
    
    
    
    29,595
    
    
    
    29,905(Investment) return of capital in limited partnership
    
    
    (23
    )
    
    
    (79
    )
    
    
    1,004Capital expenditures
    
    
    (2,038
    )
    
    
    (2,318
    )
    
    
    (6,288
    )Sale of fixed assets and other property owned
    
    
    566
    
    
    
    7,605
    
    
    
    2,329Sale of liabilities
    
    
    
    
    
    
    (205
    )
    
    
    Sale of discontinued operations
    
    
    
    
    
    
    4,875
    
    
    
    Payout from bank owned life insurance
    
    
    3,100
    
    
    
    1,217
    
    
    
    (Increase) decrease in federal funds sold
    
    
    (41,750
    )
    
    
    
    
    
    
    36,350Net cash provided by investing activities
    
    
    21,013
    
    
    
    119,785
    
    
    
    135,775
 Page 40




---



##### 



Years Ended December 31,2007
    
    
    2006
    
    
    2005Cash flows from financing activities:Net change in demand deposits, checking with interest and savings
    
    
    (27,225
    )
    
    
    (68,108
    )
    
    
    (64,722
    )Net Change in time deposits
    
    
    (17,918
    )
    
    
    4,434
    
    
    
    (13,420
    )Deposits and other liabilities sold
    
    
    
    
    
    
    (31,407
    )Increase (decrease) in short-term borrowings, net
    
    
    12,737
    
    
    
    (33,041
    )
    
    
    (5,206
    )Issuance of long term debt
    
    
    5,000
    
    
    
    1,500
    
    
    
    10,000Principal payment on long term debt
    
    
    (6,443
    )
    
    
    (1,355
    )
    
    
    (67,257
    )Net change in other interest bearing liabilities
    
    
    (15
    )
    
    
    97
    
    
    
    28Dividends paid
    
    
    (15,674
    )
    
    
    (15,639
    )
    
    
    (15,651
    )Issuance of common stock
    
    
    1,985
    
    
    
    4,040
    
    
    
    1,904Acquisition of treasury stock
    
    
    (960
    )
    
    
    (4,194
    )
    
    
    (1,864
    )Net cash used in financing activities
    
    
    (48,513
    )
    
    
    (143,673
    )
    
    
    (156,188
    )Net increase (decrease) in cash and cash equivalents
    
    $
    2,721
    
    
    $
    31
    
    
    $
    8,317Cash and cash equivalents at beginning of period
    
    $
    56,225
    
    
    $
    56,194
    
    
    $
    47,877Cash and cash equivalents at end of period
    
    
    58,946
    
    
    
    56,225
    
    
    
    56,194Net increase (decrease) in cash and cash equivalents
    
    $
    2,721
    
    
    $
    31
    
    
    $
    8,317Interest paid
    
    $
    34,292
    
    
    $
    33,546
    
    
    $
    29,451Income taxes paid
    
    
    4,768
    
    
    
    5,720
    
    
    
    448Supplemental schedule of noncash investing and financing activities:Transfers of loans to other real estate owned
    
    $
    1,317
    
    
    $
    818
    
    
    $
    176Transfers of bank property to other real estate owned
    
    
    
    
    
    
    
    
    
    
    45
  Page 41




---



##### 



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 OMEGA FINANCIAL CORPORATION AND SUBSIDIARIES
YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005
 Nature of Operations
  1. Summary of Significant Accounting Policies
  Principles of consolidation
    Use of Estimates
  Page 42




---



##### 



Business combinations
  Cash and cash equivalents
  Investment securities
     Loans
    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; or4.
    
    The loan is deemed to be uncollectible for any other reason.
   Page 43




---



##### 



Loan origination fees and costs
  Allowance for loan losses
  Other real estate owned
  Investments in limited partnerships
   Goodwill and other intangible assets
  Page 44




---



##### 



Premises and equipment and depreciation
  Trust revenues
  Revenues from the sales of investment products
  Bank-owned life insurance
  Income taxes
   Stock-Based Compensation
    Page 45




---



##### 



2005Net income
    
    As reported
    
    $
    22,875Pro forma
    
    
    22,687Basic earnings per share
    
    As reported
    
    $
    1.82Pro forma
    
    
    1.80Diluted earnings per share
    
    As reported
    
    $
    1.81Pro forma
    
    
    1.79
       Advertising Costs
  Reclassification
  Page 46




---



##### 



2. Recent Accounting Pronouncements
    3. Restrictions on Cash and Due From Banks
  Page 47




---



##### 



4. Investment Securities (In thousands)
  December 31, 2007Gross
    
    
    GrossAmortized
    
    
    Market
    
    
    Weighted
    
    
    Unrealized
    
    
    UnrealizedType and maturity
    
    Cost
    
    
    Value
    
    
    Avg. Yield
    
    
    Gains
    
    
    LossesU.S. Treasury securities and obligations of other
U.S. Government agencies and corporationsIn one year or less
    
    $
    51,735
    
    
    $
    51,674
    
    
    
    3.96
    %
    
    $
    65
    
    
    $
    (126
    )After one year through five years
    
    
    125,534
    
    
    
    128,457
    
    
    
    4.94
    
    
    
    2,927
    
    
    
    (4
    )After five years through ten years
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    After ten years
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Obligations of state and political subdivisionsIn one year or less
    
    
    860
    
    
    
    860
    
    
    
    4.33
    
    
    
    2
    
    
    
    (2
    )After one year through five years
    
    
    2,373
    
    
    
    2,404
    
    
    
    4.96
    
    
    
    38
    
    
    
    (7
    )After five years through ten years
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    After ten years
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Corporate and other securitiesIn one year or less
    
    
    1,346
    
    
    
    1,345
    
    
    
    4.47
    
    
    
    1
    
    
    
    (2
    )After one year through five years
    
    
    1,060
    
    
    
    1,065
    
    
    
    4.83
    
    
    
    5
    
    
    
    After five years through ten years
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    After ten years
    
    
    192
    
    
    
    192
    
    
    
    5.66
    
    
    
    
    
    
    
    Mortgage-backed securitiesIn one year or less
    
    
    1,156
    
    
    
    1,148
    
    
    
    4.04
    
    
    
    
    
    
    
    (8
    )After one year through five years
    
    
    72,627
    
    
    
    72,353
    
    
    
    4.64
    
    
    
    143
    
    
    
    (417
    )After five years through ten years
    
    
    1,504
    
    
    
    1,502
    
    
    
    4.82
    
    
    
    3
    
    
    
    (5
    )After ten years
    
    
    8,048
    
    
    
    7,992
    
    
    
    4.74
    
    
    
    19
    
    
    
    (75
    )Common stock
    
    
    6,317
    
    
    
    7,533
    
    
    
    N/M
    
    
    
    1,569
    
    
    
    (353
    )Total
    
    $
    272,752
    
    
    $
    276,525
    
    
    
    4.65
    %
    
    $
    4,772
    
    
    $
    (999
    )
 Page 48




---



##### 



December 31, 2006Gross
    
    
    GrossAmortized
    
    
    Market
    
    
    Weighted
    
    
    Unrealized
    
    
    UnrealizedType and maturity
    
    Cost
    
    
    Value
    
    
    Avg. Yield
    
    
    Gains
    
    
    LossesU.S. Treasury securities and obligations of other
U.S. Government agencies and corporationsIn one year or less
    
    $
    107,442
    
    
    $
    106,892
    
    
    
    3.59
    %
    
    $
    
    
    
    $
    (550
    )After one year through five years
    
    
    80,763
    
    
    
    80,088
    
    
    
    4.36
    
    
    
    102
    
    
    
    (777
    )After five years through ten years
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    After ten years
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Obligations of state and political subdivisionsIn one year or less
    
    
    2,800
    
    
    
    2,791
    
    
    
    4.64
    
    
    
    2
    
    
    
    (11
    )After one year through five years
    
    
    1,740
    
    
    
    1,705
    
    
    
    4.83
    
    
    
    
    
    
    
    (35
    )After five years through ten years
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    After ten years
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Corporate and other securitiesIn one year or less
    
    
    1,592
    
    
    
    1,583
    
    
    
    4.71
    
    
    
    
    
    
    
    (9
    )After one year through five years
    
    
    1,473
    
    
    
    1,457
    
    
    
    4.67
    
    
    
    
    
    
    
    (16
    )After five years through ten years
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    After ten years
    
    
    192
    
    
    
    199
    
    
    
    5.86
    
    
    
    7
    
    
    
    Mortgage-backed securitiesIn one year or less
    
    
    172
    
    
    
    171
    
    
    
    4.64
    
    
    
    
    
    
    
    (1
    )After one year through five years
    
    
    73,649
    
    
    
    72,845
    
    
    
    4.66
    
    
    
    72
    
    
    
    (876
    )After five years through ten years
    
    
    6,745
    
    
    
    6,699
    
    
    
    5.04
    
    
    
    2
    
    
    
    (48
    )After ten years
    
    
    9,811
    
    
    
    9,644
    
    
    
    4.72
    
    
    
    37
    
    
    
    (204
    )Common stock
    
    
    4,947
    
    
    
    7,733
    
    
    
    N/M
    
    
    
    2,805
    
    
    
    (19
    )Total
    
    $
    291,326
    
    
    $
    291,807
    
    
    
    4.19
    %
    
    $
    3,027
    
    
    $
    (2,546
    )
 Page 49




---



##### 



December 31, 2005Gross
    
    
    GrossAmortized
    
    
    Market
    
    
    Weighted
    
    
    Unrealized
    
    
    UnrealizedType and maturity
    
    Cost
    
    
    Value
    
    
    Avg. Yield
    
    
    Gains
    
    
    LossesU.S. Treasury securities and obligations of other
U.S. Government agencies and corporationsIn one year or less
    
    $
    74,885
    
    
    $
    73,986
    
    
    
    2.90
    %
    
    $
    
    
    
    $
    (899
    )After one year through five years
    
    
    138,681
    
    
    
    136,137
    
    
    
    3.52
    
    
    
    
    
    
    
    (2,544
    )After five years through ten years
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    After ten years
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Obligations of state and political subdivisionsIn one year or less
    
    
    32,889
    
    
    
    32,861
    
    
    
    3.43
    
    
    
    56
    
    
    
    (84
    )After one year through five years
    
    
    23,351
    
    
    
    22,828
    
    
    
    2.35
    
    
    
    1
    
    
    
    (524
    )After five years through ten years
    
    
    50
    
    
    
    50
    
    
    
    5.30
    
    
    
    
    
    
    
    After ten years
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Corporate and other securitiesIn one year or less
    
    
    1,002
    
    
    
    996
    
    
    
    3.49
    
    
    
    1
    
    
    
    (7
    )After one year through five years
    
    
    2,126
    
    
    
    2,095
    
    
    
    4.54
    
    
    
    
    
    
    
    (31
    )After five years through ten years
    
    
    100
    
    
    
    98
    
    
    
    4.68
    
    
    
    
    
    
    
    (2
    )After ten years
    
    
    192
    
    
    
    199
    
    
    
    5.87
    
    
    
    7
    
    
    
    Mortgage-backed securitiesIn one year or less
    
    
    7
    
    
    
    7
    
    
    
    4.43
    
    
    
    
    
    
    
    After one year through five years
    
    
    53,175
    
    
    
    51,983
    
    
    
    4.31
    
    
    
    2
    
    
    
    (1,194
    )After five years through ten years
    
    
    2,794
    
    
    
    2,758
    
    
    
    4.67
    
    
    
    4
    
    
    
    (40
    )After ten years
    
    
    14,016
    
    
    
    13,894
    
    
    
    4.46
    
    
    
    64
    
    
    
    (186
    )Common stock
    
    
    5,917
    
    
    
    9,408
    
    
    
    N/M
    
    
    
    3,507
    
    
    
    (16
    )Total
    
    $
    349,185
    
    
    $
    347,300
    
    
    
    3.47
    %
    
    $
    3,642
    
    
    $
    (5,527
    )
 
 N/M = Not meaningful    2007
    
    2006
    
    2005Gross proceeds from securities transactions
    
    $
    143,431
    
    
    $
    146,519
    
    
    $
    115,361Realized gains
    
    
    288
    
    
    
    816
    
    
    
    2,371Realized losses
    
    
    
    
    
    
    427
    
    
    
    44
 Page 50




---



##### 



December 31, 2007Less Than 12 Months
    
    
    12 Months or LongerFair
    
    
    Unrealized
    
    
    Fair
    
    
    UnrealizedValue
    
    
    Losses
    
    
    Value
    
    
    LossesU.S. Treasury securities and obligations of other 

U.S. Government agencies and corporations
    
    $
    7,006
    
    
    $
    (11
    )
    
    $
    32,263
    
    
    $
    (119
    )Obligations of state and political subdivisions
    
    
    
    
    
    
    
    
    
    
    686
    
    
    
    (9
    )Corporate and other securities
    
    
    303
    
    
    
    (1
    )
    
    
    349
    
    
    
    (1
    )Mortgage-backed securities
    
    
    5,677
    
    
    
    (10
    )
    
    
    50,630
    
    
    
    (495
    )Debt securities
    
    
    12,986
    
    
    
    (22
    )
    
    
    83,928
    
    
    
    (624
    )Common stock
    
    
    1,860
    
    
    
    (343
    )
    
    
    14
    
    
    
    (10
    )Total temporarily impaired securities
    
    $
    14,846
    
    
    $
    (365
    )
    
    $
    83,942
    
    
    $
    (634
    )
 December 31, 2006Less Than 12 Months
    
    
    12 Months or LongerFair
    
    
    Unrealized
    
    
    Fair
    
    
    UnrealizedValue
    
    
    Losses
    
    
    Value
    
    
    LossesU.S. Treasury securities and obligations of other 

U.S. Government agencies and corporations
    
    $
    25,512
    
    
    $
    (96
    )
    
    $
    136,818
    
    
    $
    (1,231
    )Obligations of state and political subdivisions
    
    
    1,178
    
    
    
    (17
    )
    
    
    1,316
    
    
    
    (29
    )Corporate and other securities
    
    
    102
    
    
    
    (2
    )
    
    
    1,586
    
    
    
    (23
    )Mortgage-backed securities
    
    
    17,283
    
    
    
    (42
    )
    
    
    56,078
    
    
    
    (1,087
    )Debt securities
    
    
    44,075
    
    
    
    (157
    )
    
    
    195,798
    
    
    
    (2,370
    )Common stock
    
    
    144
    
    
    
    (19
    )
    
    
    
    
    
    
    0Total temporarily impaired securities
    
    $
    44,219
    
    
    $
    (176
    )
    
    $
    195,798
    
    
    $
    (2,370
    )
  Page 51




---



##### 



5. Portfolio Loans and Loans Available for Sale
  December 31,2007
    
    2006
    
    2005
    
    2004
    
    2003Commercial, financial and agricultural
    
    $
    206,430
    
    
    $
    250,906
    
    
    $
    271,162
    
    
    $
    271,650
    
    
    $
    111,471Real estatecommercial
    
    
    439,037
    
    
    
    432,062
    
    
    
    465,724
    
    
    
    501,394
    
    
    
    338,703Real estateconstruction
    
    
    25,601
    
    
    
    21,562
    
    
    
    22,000
    
    
    
    25,301
    
    
    
    17,598Real estatemortgage
    
    
    195,640
    
    
    
    218,104
    
    
    
    242,606
    
    
    
    277,208
    
    
    
    197,656Home equity
    
    
    169,914
    
    
    
    164,800
    
    
    
    137,496
    
    
    
    133,077
    
    
    
    90,612Personal
    
    
    40,141
    
    
    
    45,602
    
    
    
    63,687
    
    
    
    107,859
    
    
    
    32,059Lease financing
    
    
    31,442
    
    
    
    23,143
    
    
    
    14,045
    
    
    
    13,387
    
    
    
    46Unearned interest
    
    
    (5,035
    )
    
    
    (3,787
    )
    
    
    (1,865
    )
    
    
    (1,626
    )
    
    
    (1
    )Total
    
    $
    1,103,170
    
    
    $
    1,152,392
    
    
    $
    1,214,855
    
    
    $
    1,328,250
    
    
    $
    788,144Non-accrual loans
    
    $
    21,510
    
    
    $
    21,001
    
    
    $
    6,562
    
    
    $
    5,220
    
    
    $
    2,588
     Pledged Loans
   6. Allowance For Loan Losses
   Page 52




---



##### 



Years Ended December 31,2007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003Balance of allowance  beginning of period
    
    $
    17,344
    
    
    $
    15,482
    
    
    $
    15,644
    
    
    $
    10,569
    
    
    $
    11,052Loans charged off:Commercial, financial and agricultural
    
    
    4,954
    
    
    
    160
    
    
    
    368
    
    
    
    672
    
    
    
    134Real estate  commercial
    
    
    1,252
    
    
    
    547
    
    
    
    165
    
    
    
    698
    
    
    
    176Real estate  mortgage
    
    
    312
    
    
    
    1,443
    
    
    
    314
    
    
    
    907
    
    
    
    126Personal and lease financing loans
    
    
    285
    
    
    
    398
    
    
    
    889
    
    
    
    1,445
    
    
    
    561Total charge-offs
    
    
    6,803
    
    
    
    2,548
    
    
    
    1,736
    
    
    
    3,722
    
    
    
    997Recoveries of loans previously charged off:Commercial, financial and agricultural
    
    
    7
    
    
    
    77
    
    
    
    78
    
    
    
    8
    
    
    
    11Real estate  commercial
    
    
    1
    
    
    
    20
    
    
    
    10
    
    
    
    17
    
    
    
    3Real estate  mortgage
    
    
    70
    
    
    
    303
    
    
    
    48
    
    
    
    6
    
    
    
    60Personal and lease financing loans
    
    
    296
    
    
    
    250
    
    
    
    236
    
    
    
    152
    
    
    
    90Total recoveries
    
    
    374
    
    
    
    650
    
    
    
    372
    
    
    
    183
    
    
    
    164Net charge-offs
    
    
    6,429
    
    
    
    1,898
    
    
    
    1,364
    
    
    
    3,539
    
    
    
    833Provision (credit) for loan losses
    
    
    2,155
    
    
    
    3,896
    
    
    
    1,202
    
    
    
    (300
    )
    
    
    350Allowance acquired through bank purchase
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,505
    
    
    
    Reclassification of off balance sheet liability
    
    
    (184
    )
    
    
    
    
    
    
    
    
    
    
    (591
    )
    
    
    Allocation to assets sold
    
    
    
    
    
    
    136
    
    
    
    
    
    
    
    
    
    
    
    Balance of allowance  end of period
    
    $
    12,886
    
    
    $
    17,344
    
    
    $
    15,482
    
    
    $
    15,644
    
    
    $
    10,569Ratio of net charge-offs during period to
average loans outstanding
    
    
    0.57
    %
    
    
    0.16
    %
    
    
    0.11
    %
    
    
    0.38
    %
    
    
    0.11
    %Average Loans Outstanding
    
    $
    1,135,162
    
    
    $
    1,187,238
    
    
    $
    1,262,655
    
    
    $
    926,102
    
    
    $
    789,936
  Page 53




---



##### 



2007
    
    2006
    
    2005Impaired loans:Recorded investment at period end
    
    $
    21,014
    
    
    $
    20,272
    
    
    $
    5,676Impaired loan balance for which there is a related allowance
    
    
    21,014
    
    
    
    20,272
    
    
    
    5,676Amount of allowance for impaired loans
    
    
    2,805
    
    
    
    6,678
    
    
    
    1,217Impaired loan balance for which there is no related allowance
    
    
    
    
    
    
    
    
    
    
    Average recorded investment
    
    
    20,785
    
    
    
    21,867
    
    
    
    4,933Interest income recognized (on a cash basis)
    
    
    763
    
    
    
    1,189
    
    
    
    138
 7. Bank-Owned Life Insurance
  8. Premises And Equipment
  Estimated
    
    
    December 31,Useful Life
    
    
    2007
    
    
    2006Land
    
    
    
    
    
    $
    4,743
    
    
    $
    4,760Premises and leasehold improvements
    
    5-40 years
    
    
    33,832
    
    
    
    33,046Furniture, computer software and equipment
    
    3-20 years
    
    
    30,447
    
    
    
    29,292Construction in progress
    
    
    
    
    
    
    226
    
    
    
    36369,248
    
    
    
    67,461Less: accumulated depreciation
    
    
    
    
    
    
    (40,141
    )
    
    
    (36,600
    )Premises and equipment, net
    
    
    
    
    
    $
    29,107
    
    
    $
    30,861
  Page 54




---



##### 



9. Time Deposits
  December 31,2007
    
    
    2006Time deposits $100,000 or greater
    
    $
    92,426
    
    
    $
    93,091Other time deposits
    
    
    433,852
    
    
    
    450,856Total time deposits
    
    $
    526,278
    
    
    $
    543,947
  Time Deposits$100,000Maturing in:
    
    or Greater
    
    Other2008
    
    $
    72,270
    
    
    $
    322,5172009
    
    
    3,918
    
    
    
    43,0592010
    
    
    8,673
    
    
    
    31,5542011
    
    
    4,791
    
    
    
    18,6362012
    
    
    2,617
    
    
    
    17,346Later
    
    
    157
    
    
    
    740Total time deposits
    
    $
    92,426
    
    
    $
    433,852
 10. Borrowings
  December 31,2007
    
    2006Short-Term Borrowings:Retail repurchase agreements
    
    $
    73,449
    
    
    $
    53,712Note payable to Federal Home Loan Bank,with fixed rate of 3.29%
    
    
    5,000
    
    
    
    with fixed rate of 3.07%
    
    
    
    
    
    
    5,000Overnight borrowing with another financial
institution with a fixed interest rate of 5.25%
    
    
    
    
    
    
    3,400Note payable to another financial institution
with a fixed interest rate of 2.84%
    
    
    
    
    
    
    3,600Total Short-Term Borrowings
    
    $
    78,449
    
    
    $
    65,712Long-Term Debt:Notes payable to Federal Home Loan Bank,with fixed rates between 3.29% and 6.80%
    
    $
    26,434
    
    
    $
    27,877Total Long Term Borrowings
    
    $
    26,434
    
    
    $
    27,877ESOP Debt Guarantee(see Note 18)
    
    $
    
    
    
    $
    1,481
 Page 55




---



##### 



11. Junior Subordinated Debt and Trust Preferred Securities
    Page 56




---



##### 



As of December 31, 2007Capital Trust I
    
    Sun Trust ITrust preferred securities
    
    $
    36,000
    
    
    $
    16,500Common securities
    
    
    1,114
    
    
    
    511Junior subordinated debt
    
    
    37,114
    
    
    
    18,581Stated maturity date
    
    
    10/18/34
    
    
    
    02/22/31Optional redemption date
    
    
    10/18/09
    
    
    Annually beginning2/22/2011 at variousredemption pricesRate
    
    5.98% until
    
    
    8.64
    %October 2009,then LIBOR plus219 basis points
 12. Operating Lease Obligations
   Years ending December 31,2008
    
    $
    5042009
    
    
    3282010
    
    
    1862011
    
    
    1012012
    
    
    70Later years
    
    
    465Total minimum payments required
    
    $
    1,654
  Page 57




---



##### 



13. Goodwill and Other Intangible Assets
    2007
    
    2006Core deposit intangible:Gross carrying amount
    
    $
    7,480
    
    
    $
    7,480Less: Accumulated amortization
    
    
    2,575
    
    
    
    1,839Net carrying amount
    
    
    4,905
    
    
    
    5,641Customer relationship intangibles:Gross carrying amount
    
    
    1,200
    
    
    
    1,200Less: Accumulated amortization
    
    
    355
    
    
    
    245Net carrying amount
    
    
    845
    
    
    
    955Total finite-lived intangibles:Gross carrying amount
    
    
    8,680
    
    
    
    8,680Less: Accumulated amortization
    
    
    2,930
    
    
    
    2,084Net carrying amount
    
    
    5,750
    
    
    
    6,596Trade name intangible with infinite life:Gross carrying amount
    
    $
    130
    
    
    $
    130
  14. Income Taxes
  2007
    
    
    2006
    
    
    2005Current tax expense
    
    $
    4,472
    
    
    $
    4,737
    
    
    $
    3,755Deferred tax expense
    
    
    2,088
    
    
    
    965
    
    
    
    2,458Total tax expense
    
    $
    6,560
    
    
    $
    5,702
    
    
    $
    6,213
  Page 58




---



##### 



Years Ended December 31,2007
    
    2006
    
    2005Federal tax at statutory rate
    
    
    35.0
    %
    
    
    35.0
    %
    
    
    35.0
    %Tax exempt income
    
    
    (2.9
    )
    
    
    (4.2
    )
    
    
    (5.0
    )Bank-owned life insurance earnings
    
    
    (3.2
    )
    
    
    (3.2
    )
    
    
    (2.8
    )ESOP Stock Dividends
    
    
    (1.3
    )
    
    
    (1.2
    )
    
    
    (1.1
    )Low income housing credits
    
    
    (3.6
    )
    
    
    (4.2
    )
    
    
    (4.0
    )Other, net
    
    
    (0.3
    )
    
    
    (0.6
    )
    
    
    (0.8
    )Effective rate
    
    
    23.7
    %
    
    
    21.6
    %
    
    
    21.3
    %
  December 31,2007
    
    2006Deferred Tax AssetsLoan loss reserve
    
    $
    4,796
    
    
    $
    6,273Deferred compensation
    
    
    1,864
    
    
    
    1,780Employee benefits
    
    
    
    
    
    
    249Intangible amortization
    
    
    1,824
    
    
    
    2,043Low income housing investments
    
    
    628
    
    
    
    615State Net operating loss carryforward
    
    
    3,107
    
    
    
    2,464Tax credit carryforwards
    
    
    4,207
    
    
    
    4,727Other
    
    
    648
    
    
    
    924Total deferred tax assets
    
    
    17,074
    
    
    
    19,075Allowance for deferred tax assets
    
    
    (3,258
    )
    
    
    (2,692
    )Net deferred tax assets
    
    
    13,816
    
    
    
    16,383Deferred Tax LiabilitiesDepreciation
    
    
    (1,468
    )
    
    
    (1,770
    )Unrealized net gains on securities
    
    
    (1,318
    )
    
    
    (168
    )Purchase accounting adjustments
    
    
    (1,617
    )
    
    
    (1,849
    )Leases (net)
    
    
    (3
    )
    
    
    (17
    )Other
    
    
    (167
    )
    
    
    (78
    )Total deferred tax liabilities
    
    
    (4,573
    )
    
    
    (3,882
    )Allowance for deferred tax liabilities
    
    
    34
    
    
    
    32Net deferred tax liabilities
    
    
    (4,539
    )
    
    
    (3,850
    )Net deferred tax asset
included in other assets
    
    $
    9,277
    
    
    $
    12,533
   Page 59




---



##### 



Balance, January 1, 2007
    
    $
    330Additions based on tax positions related to the current year
    
    
    Additions for tax positions of prior years
    
    
    Reductions for tax positions of prior years
    
    
    Reductions due to the statute of limitations
    
    
    Settlements
    
    
    Balance at December 31, 2007
    
    $
    330
    15. Shareholders Equity
    Page 60




---



##### 



16. Earnings Per Share
  2007
    
    2006
    
    2005NumeratorIncome from continuing operations
    
    $
    21,097
    
    
    $
    20,745
    
    
    $
    22,763Income (loss) from discontinued operations
    
    
    
    
    
    
    (314
    )
    
    
    112Net Income
    
    $
    21,097
    
    
    $
    20,431
    
    
    $
    22,875DenominatorBasic weighted-average shares outstanding
    
    
    12,631
    
    
    
    12,577
    
    
    
    12,601Dilutive potential shares from stock-based compensation
    
    
    8
    
    
    
    29
    
    
    
    40Potential Shares required for contract settlement
    
    
    4
    
    
    
    4
    
    
    
    4Dilutive weighted-average shares outstanding
    
    
    12,643
    
    
    
    12,610
    
    
    
    12,645Earnings per share  BasicIncome from continuing operations
    
    $
    1.67
    
    
    $
    1.64
    
    
    $
    1.81Income (loss) from discontinued operations
    
    
    0.00
    
    
    
    (0.02
    )
    
    
    0.01Net Income
    
    $
    1.67
    
    
    $
    1.62
    
    
    $
    1.82Earnings per share  DilutedIncome from continuing operations
    
    $
    1.67
    
    
    $
    1.64
    
    
    $
    1.81Income (loss) from discontinued operations
    
    
    0.00
    
    
    
    (0.02
    )
    
    
    0.01Net Income
    
    $
    1.67
    
    
    $
    1.62
    
    
    $
    1.81
  Page 61




---



##### 



17. Comprehensive Income
  Year ended December 31, 2007Before
    
    Tax (Expense)Tax
    
    or
    
    Net-of-TaxAmount
    
    Benefit
    
    AmountUnrealized gains on available for sale securities :Unrealized holding gains arising during the period
    
    $
    3,922
    
    
    $
    (1,373
    )
    
    $
    2,550Less: reclassification adjustment for gains included in net income
    
    
    (632
    )
    
    
    221
    
    
    
    (410
    )Other comprehensive income
    
    $
    3,290
    
    
    $
    (1,150
    )
    
    $
    2,140
 Year ended December 31, 2006Before
    
    Tax (Expense)Tax
    
    or
    
    Net-of-TaxAmount
    
    Benefit
    
    AmountUnrealized gains on available for sale securities :Unrealized holding gains arising during the period
    
    $
    2,756
    
    
    $
    (964
    )
    
    $
    1,792Less: reclassification adjustment for gains included in net income
    
    
    (389
    )
    
    
    136
    
    
    
    (253
    )Other comprehensive income
    
    $
    2,367
    
    
    $
    (828
    )
    
    $
    1,539
 Year ended December 31, 2005Before
    
    Tax (Expense)Tax
    
    or
    
    Net-of-TaxAmount
    
    Benefit
    
    AmountUnrealized 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
    )
  18. Employee Benefit Plans
 Omega Stock Compensation Plans
   Page 62




---



##### 



Employee
    
    Employee
    
    DirectorOptions Granted in 2005
    
    Stock Purchase Plan
    
    Stock Option Plan (1996)
    
    Stock Option PlanExpected life of options
    
    
    
    
    
    6 years
    
    6 yearsRisk-free interest rate
    
    
    
    
    
    
    4.35
    %
    
    
    4.35
    %Expected volatility
    
    
    
    
    
    
    35.51
    %
    
    
    35.51
    %Expected dividend yield
    
    
    
    
    
    
    3.39
    %
    
    
    3.39
    %
      2007
    
    
    2006
    
    
    2005Weighted-
    
    
    
    
    
    
    Weighted-
    
    
    
    
    
    
    Weighted-Average
    
    
    
    
    
    
    Average
    
    
    
    
    
    
    AverageExercise
    
    
    
    
    
    
    Exercise
    
    
    
    
    
    
    ExerciseESPP
    
    Shares
    
    
    Price
    
    
    Shares
    
    
    Price
    
    
    Shares
    
    
    PriceOutstanding at beginning of year
    
    
    107,284
    
    
    $
    31.85
    
    
    
    156,259
    
    
    $
    31.82
    
    
    
    216,042
    
    
    $
    31.40Granted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Exercised
    
    
    (33,418
    )
    
    
    25.67
    
    
    
    (31,179
    )
    
    
    28.18
    
    
    
    (35,479
    )
    
    
    26.38Forfeited
    
    
    (19,596
    )
    
    
    31.96
    
    
    
    (17,796
    )
    
    
    30.81
    
    
    
    (24,304
    )
    
    
    29.91Outstanding at end of year
    
    
    54,270
    
    
    
    31.38
    
    
    
    107,284
    
    
    
    31.85
    
    
    
    156,259
    
    
    
    31.82Options exercisable at year-end
    
    
    54,270
    
    
    
    
    
    
    
    107,284
    
    
    
    
    
    
    
    156,259Weighted-average fair value of options
granted during the year
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    
 Page 63




---



##### 



2007
    
    
    2006
    
    
    2005Weighted-
    
    
    
    
    
    
    Weighted-
    
    
    
    
    
    
    Weighted-Average
    
    
    
    
    
    
    Average
    
    
    
    
    
    
    AverageExercise
    
    
    
    
    
    
    Exercise
    
    
    
    
    
    
    ExerciseSOPs
    
    Shares
    
    
    Price
    
    
    Shares
    
    
    Price
    
    
    Shares
    
    
    PriceOutstanding at beginning of year
    
    
    455,887
    
    
    $
    32.94
    
    
    
    601,460
    
    
    $
    31.63
    
    
    
    643,719
    
    
    $
    31.49Granted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    24,500
    
    
    
    29.79Exercised
    
    
    (43,340
    )
    
    
    26.01
    
    
    
    (120,823
    )
    
    
    25.93
    
    
    
    (35,941
    )
    
    
    21.08Forfeited
    
    
    (47,202
    )
    
    
    34.54
    
    
    
    (24,750
    )
    
    
    35.31
    
    
    
    (30,818
    )
    
    
    39.42Outstanding at end of year
    
    
    365,345
    
    
    
    33.55
    
    
    
    455,887
    
    
    
    32.94
    
    
    
    601,460
    
    
    
    31.63Options exercisable at year-end
    
    
    365,345
    
    
    
    
    
    
    
    455,887
    
    
    
    
    
    
    
    601,460Weighted-average fair value of options
granted during the year
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    
 2007
    
    
    2006
    
    
    2005Weighted-
    
    
    
    
    
    
    Weighted-
    
    
    
    
    
    
    Weighted-Average
    
    
    
    
    
    
    Average
    
    
    
    
    
    
    AverageExercise
    
    
    
    
    
    
    Exercise
    
    
    
    
    
    
    ExerciseDirector Plans
    
    Shares
    
    
    Price
    
    
    Shares
    
    
    Price
    
    
    Shares
    
    
    PriceOutstanding at beginning of year
    
    
    23,264
    
    
    $
    32.31
    
    
    
    36,210
    
    
    $
    32.20
    
    
    
    65,171
    
    
    $
    31.27Granted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,250
    
    
    
    29.79Exercised
    
    
    
    
    
    
    
    
    
    
    (1,146
    )
    
    
    24.63
    
    
    
    (8,591
    )
    
    
    23.44Forfeited
    
    
    (1,692
    )
    
    
    28.67
    
    
    
    (11,800
    )
    
    
    25.38
    
    
    
    (23,620
    )
    
    
    32.93Outstanding at end of year
    
    
    21,572
    
    
    
    32.60
    
    
    
    23,264
    
    
    
    32.31
    
    
    
    36,210
    
    
    
    32.20Options exercisable at year-end
    
    
    21,572
    
    
    
    
    
    
    
    23,264
    
    
    
    
    
    
    
    36,210Weighted-average fair value of options
granted during the year
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    
 Omega Employee Stock Ownership Plan
   Page 64




---



##### 



Defined Contribution Plan
  Supplemental Executive Retirement Plan
  Supplemental Director Retirement Plan
  19.
    
    Fair Value of Financial Instruments
    Investment Securities
 Commercial, Financial and Agricultural Loans, Real Estate-Commercial Loans and Real
Estate-Construction Loans
 Real Estate Mortgage Loans
 Page 65




---



##### 



Home Equity Loans
 Personal Loans and Lease Financing
 Fixed Rate Time Deposits
 ESOP Debt
 Junior Subordinated Debentures
 Long-Term Debt
 Standby Letters of Credit
  Financial Instruments
 December 31, 2007
    
    December 31, 2006Book
    
    Estimated
    
    Book
    
    EstimatedValue
    
    Fair Value
    
    Value
    
    Fair ValueLoans (net of unearned interest):Commercial, financial and agricultural
    
    $
    206,430
    
    
    $
    203,115
    
    
    $
    250,906
    
    
    $
    241,356Real estate  commercial
    
    
    439,037
    
    
    
    432,074
    
    
    
    432,062
    
    
    
    422,247Real estate  construction
    
    
    25,601
    
    
    
    24,418
    
    
    
    21,562
    
    
    
    21,508Real estate  mortgage
    
    
    195,640
    
    
    
    199,958
    
    
    
    218,104
    
    
    
    214,722Home equity
    
    
    169,914
    
    
    
    181,251
    
    
    
    164,800
    
    
    
    169,089Personal
    
    
    40,141
    
    
    
    40,638
    
    
    
    45,600
    
    
    
    45,160Lease financing
    
    
    26,407
    
    
    
    27,037
    
    
    
    19,358
    
    
    
    19,228Allowance for loan losses
    
    
    (12,886
    )
    
    
    
    
    
    
    (17,344
    )
    
    
    Total loans
    
    $
    1,090,284
    
    
    $
    1,108,491
    
    
    $
    1,135,048
    
    
    $
    1,133,310
 Page 66




---



##### 



December 31, 2007
    
    December 31, 2006Book
    
    Estimated
    
    Book
    
    EstimatedValue
    
    Fair Value
    
    Value
    
    Fair ValueFixed rate time deposits
    
    $
    510,875
    
    
    $
    516,400
    
    
    $
    530,558
    
    
    $
    529,027ESOP debt
    
    
    
    
    
    
    
    
    
    
    1,481
    
    
    
    1,355Junior subordinated debentures
    
    
    55,695
    
    
    
    57,717
    
    
    
    56,193
    
    
    
    58,679Long-term debt
    
    
    26,434
    
    
    
    27,231
    
    
    
    27,877
    
    
    
    27,635Standby letters of credit
    
    
    
    
    
    
    150
    
    
    
    
    
    
    
    161Outstanding loan commitments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Unused lines of credit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 20.
    
    Financial Instruments With Off-Balance Sheet Risk And Concentrations Of Credit Risk
       Page 67




---



##### 



21.
    
    Related-Party Transactions
  22.
    
    Commitments And Contingent Liabilities
   23.
    
    Regulatory Matters
     Page 68




---



##### 



Minimum
    
    MinimumRequirement
    
    RegulatoryFor Capital
    
    Requirements to beActual
    
    Adequacy Purposes
    
    Well CapitalizedAmount
    
    Ratio
    
    Amount
    
    Ratio
    
    Amount
    
    RatioOMEGA FINANCIAL CORPORATIONAs of December 31, 2007:Total Capital (to Risk Weighted Assets)
    
    $
    234,062
    
    
    
    20.1
    %
    
    $
    93,194
    
    
    
    8.0
    %
    
    $
    116,493
    
    
    
    10.0
    %Tier 1 Capital (to Risk Weighted Assets)
    
    
    220,326
    
    
    
    18.9
    %
    
    
    46,597
    
    
    
    4.0
    %
    
    
    69,896
    
    
    
    6.0
    %Tier 1 Capital (to Average Assets)
    
    
    220,326
    
    
    
    13.5
    %
    
    
    65,267
    
    
    
    4.0
    %
    
    
    81,583
    
    
    
    5.0
    %As of December 31, 2006:Total Capital (to Risk Weighted Assets)
    
    $
    227,266
    
    
    
    18.9
    %
    
    $
    96,351
    
    
    
    8.0
    %
    
    $
    120,438
    
    
    
    10.0
    %Tier 1 Capital (to Risk Weighted Assets)
    
    
    212,370
    
    
    
    17.6
    %
    
    
    48,175
    
    
    
    4.0
    %
    
    
    72,263
    
    
    
    6.0
    %Tier 1 Capital (to Average Assets)
    
    
    212,370
    
    
    
    12.3
    %
    
    
    69,158
    
    
    
    4.0
    %
    
    
    86,447
    
    
    
    5.0
    %OMEGA BANKAs of December 31, 2007:Total Capital (to Risk Weighted Assets)
    
    $
    207,816
    
    
    
    18.1
    %
    
    $
    91,717
    
    
    
    8.0
    %
    
    $
    114,647
    
    
    
    10.0
    %Tier 1 Capital (to Risk Weighted Assets)
    
    
    194,080
    
    
    
    16.9
    %
    
    
    45,859
    
    
    
    4.0
    %
    
    
    68,788
    
    
    
    6.0
    %Tier 1 Capital (to Average Assets)
    
    
    194,080
    
    
    
    12.1
    %
    
    
    64,247
    
    
    
    4.0
    %
    
    
    80,309
    
    
    
    5.0
    %As of December 31, 2006:Total Capital (to Risk Weighted Assets)
    
    $
    206,237
    
    
    
    17.4
    %
    
    $
    94,869
    
    
    
    8.0
    %
    
    $
    118,586
    
    
    
    10.0
    %Tier 1 Capital (to Risk Weighted Assets)
    
    
    191,341
    
    
    
    16.1
    %
    
    
    47,434
    
    
    
    4.0
    %
    
    
    71,152
    
    
    
    6.0
    %Tier 1 Capital (to Average Assets)
    
    
    191,341
    
    
    
    11.2
    %
    
    
    68,184
    
    
    
    4.0
    %
    
    
    85,231
    
    
    
    5.0
    %
   24.
    
    Discontinued Operations
  
 September 15,2006Assets:Premise and equipment
    
    $
    2,343Goodwill
    
    
    1,610Other intangible
    
    
    1,233Other assets
    
    
    Total assets
    
    $
    5,186Liabilities:Other liabilities
    
    $
    348Total liabilities
    
    $
    348
 Page 69




---



##### 



2006
    
    
    2005Other Income:Trust fees
    
    $
    1,606
    
    
    $
    1,867Investment and insurance product sales
    
    
    41
    
    
    
    112Other
    
    
    50
    
    
    
    Total other Income
    
    
    1,697
    
    
    
    1,979Other expense:Salaries and employee benefits
    
    
    585
    
    
    
    1,173Net occupancy expense
    
    
    4
    
    
    
    22Equipment expense
    
    
    21
    
    
    
    49Pennsylvania shares tax
    
    
    81
    
    
    
    84Amortization of intangible assets
    
    
    102
    
    
    
    160Other
    
    
    216
    
    
    
    410Total other expense
    
    
    1,009
    
    
    
    1,898Income from discontinued operations before taxes
    
    
    688
    
    
    
    81Income tax expense
    
    
    242
    
    
    
    (31
    )Income (loss) from discontinued operations
    
    $
    446
    
    
    $
    112
  2006
    
    
    2005Net cash provided by (used in) operating activities
    
    $
    206
    
    
    $
    (23
    )Net cash provided by investing activities
    
    
    712
    
    
    
    (65
    )Net cash provided by (used in) financing activities
    
    
    (1,430
    )
    
    
    600Net increase(decrease) in cash and cash
equivalents of discontinued operations
    
    $
    (512
    )
    
    $
    512
 Page 70




---



##### 



25.
    
    Omega Financial Corporation (Parent Company Only)
Financial information (in thousands):
 
 December 31,2007
    
    2006ASSETS:Cash
    
    $
    7,352
    
    
    $
    4,883Investment in bank subsidiaries
    
    
    340,259
    
    
    
    334,935Investment in non-bank subsidiaries
    
    
    37,782
    
    
    
    37,927Investment in unconsolidated subsidiaries
    
    
    1,625
    
    
    
    1,625Investment securities available for sale
    
    
    60
    
    
    
    548Premises and equipment, net
    
    
    4,389
    
    
    
    4,309Other assets
    
    
    1,106
    
    
    
    548TOTAL ASSETS
    
    $
    392,573
    
    
    $
    384,775LIABILITIES:Junior subordinated debentures
    
    $
    55,695
    
    
    $
    56,193ESOP debt
    
    
    
    
    
    
    1,481Accounts payable and other liabilities
    
    
    2,129
    
    
    
    1,890TOTAL LIABILITIES
    
    
    57,824
    
    
    
    59,564SHAREHOLDERS EQUITY
    
    
    334,749
    
    
    
    325,211TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
    
    $
    392,573
    
    
    $
    384,775
 
 Years ended December 31,2007
    
    2006
    
    2005INCOME:Dividends from:Bank subsidiaries
    
    $
    18,188
    
    
    $
    18,116
    
    
    $
    40,461Non-bank subsidiaries
    
    
    1,988
    
    
    
    2,013
    
    
    
    1,663Unconsolidated subsidiaries
    
    
    120
    
    
    
    120
    
    
    
    120Securities available for sale
    
    
    16
    
    
    
    37
    
    
    
    32Fees received from subsidiaries
    
    
    876
    
    
    
    596
    
    
    
    606Other income
    
    
    
    
    
    
    (1
    )
    
    
    10TOTAL INCOME
    
    
    21,188
    
    
    
    20,881
    
    
    
    42,892EXPENSE:Interest expense
    
    
    4,024
    
    
    
    4,122
    
    
    
    4,354Amortization
    
    
    (1,120
    )
    
    
    (597
    )
    
    
    (597
    )Salaries and employee benefits
    
    
    665
    
    
    
    580
    
    
    
    674Merger costs
    
    
    765
    
    
    
    
    
    
    
    Other
    
    
    487
    
    
    
    506
    
    
    
    569TOTAL EXPENSE
    
    
    4,821
    
    
    
    4,611
    
    
    
    5,000INCOME BEFORE INCOME TAXES AND EQUITY
IN UNDISTRIBUTED NET INCOME OF SUBSIDIARIES
    
    
    16,367
    
    
    
    16,270
    
    
    
    37,892Income tax benefit
    
    
    (1,663
    )
    
    
    (1,673
    )
    
    
    (1,793
    )18,030
    
    
    
    17,943
    
    
    
    39,685Equity in undistributed net income of subsidiaries
    
    3,067
    
    
    2,488
    
    
    
    (16,810
    )NET INCOME
    
    $
    21,097
    
    
    $
    20,431
    
    
    $
    22,875
 Page 71




---



##### 



Years ended December 31,2007
    
    
    2006
    
    
    2005Cash flows from operating activities:Net income
    
    $
    21,097
    
    
    $
    20,431
    
    
    $
    22,875Adjustments to reconcile net income to net cash
provided by operating activities:Depreciation and amortization
    
    
    (913
    )
    
    
    (370
    )
    
    
    (326
    )Gain on sale of assets
    
    
    
    
    
    
    1
    
    
    
    (10
    )Decrease in interest and other receivable
    
    
    (93
    )
    
    
    (34
    )
    
    
    (73
    )Decrease in taxes payable
    
    
    (320
    )
    
    
    (1,877
    )
    
    
    (2,095
    )Increase (decrease) in accounts payable and accrued expenses
    
    
    181
    
    
    
    (464
    )
    
    
    (490
    )(Increase) decrease in Undistributed earnings of subsidiaries
    
    
    (3,039
    )
    
    
    (2,488
    )
    
    
    16,810Total adjustments
    
    
    (4,184
    )
    
    
    (5,232
    )
    
    
    13,816Net cash provided by operating activities
    
    
    16,913
    
    
    
    15,199
    
    
    
    36,691Cash flows from investing activities:Capital expenditures
    
    
    (287
    )
    
    
    (30
    )
    
    
    (293
    )Sale of fixed assets and other assets
    
    
    500
    
    
    
    442
    
    
    
    10Net cash provided by (used in) investing activities
    
    
    213
    
    
    
    412
    
    
    
    (283
    )Cash flows from financing activities:Issuance of demand note payable
    
    
    
    
    
    
    
    
    
    
    (10,000
    )Issuance of long-term debt
    
    
    
    
    
    
    
    
    
    
    (12,000
    )Dividends paid
    
    
    (15,674
    )
    
    
    (15,639
    )
    
    
    (15,651
    )Net change in interest bearing liabilities
    
    
    (8
    )
    
    
    (4
    )
    
    
    25Issuance of common stock
    
    
    1,985
    
    
    
    4,040
    
    
    
    1,904Acquisition of treasury stock
    
    
    (960
    )
    
    
    (4,194
    )
    
    
    (1,864
    )Net cash used in financing activities
    
    
    (14,657
    )
    
    
    (15,797
    )
    
    
    (37,586
    )Net increase (decrease) in cash and due from banks
    
    $
    2,469
    
    
    $
    (186
    )
    
    $
    (1,178
    )Cash and due from banks at beginning of period
    
    $
    4,883
    
    
    $
    5,069
    
    
    $
    6,247Cash and due from banks at end of period
    
    
    7,352
    
    
    
    4,883
    
    
    
    5,069Net increase (decrease) in cash and due from banks
    
    $
    2,469
    
    
    $
    (186
    )
    
    $
    (1,178
    )Income taxes paid
    
    $
    4,626
    
    
    $
    5,650
    
    
    $
    375Interest paid
    
    
    4,000
    
    
    
    4,098
    
    
    
    4,333
 Page 72




---



##### 



26.
Quarterly Results Of Operations (Unaudited)
 2007 Quarter EndedMarch 31 (1)
    
    
    June 30
    
    
    September 30
    
    
    December 31Total interest income
    
    $
    23,340
    
    
    $
    23,523
    
    
    $
    23,769
    
    
    $
    23,346Total interest expense
    
    
    8,416
    
    
    
    8,579
    
    
    
    8,768
    
    
    
    8,390Net interest income
    
    
    14,924
    
    
    
    14,944
    
    
    
    15,001
    
    
    
    14,956Provision for loan losses
    
    
    610
    
    
    
    745
    
    
    
    205
    
    
    
    595Income from credit activities
    
    
    14,314
    
    
    
    14,199
    
    
    
    14,796
    
    
    
    14,361Other incomeService fees
    
    
    2,724
    
    
    
    3,084
    
    
    
    2,990
    
    
    
    3,111Securities gains
    
    
    375
    
    
    
    (37
    )
    
    
    153
    
    
    
    141Other income
    
    
    4,030
    
    
    
    3,691
    
    
    
    4,087
    
    
    
    3,733Other expensesSalaries and benefits
    
    
    7,217
    
    
    
    6,882
    
    
    
    7,233
    
    
    
    7,335Net occupancy expense
    
    
    1,055
    
    
    
    1,096
    
    
    
    995
    
    
    
    1,120Equipment expense
    
    
    1,135
    
    
    
    1,195
    
    
    
    1,155
    
    
    
    1,069Data processing service
    
    
    610
    
    
    
    599
    
    
    
    607
    
    
    
    573Other expenses
    
    
    4,031
    
    
    
    4,632
    
    
    
    4,386
    
    
    
    5,170Income before income taxes
    
    
    7,395
    
    
    
    6,533
    
    
    
    7,650
    
    
    
    6,079Income tax expense
    
    
    1,812
    
    
    
    1,570
    
    
    
    1,804
    
    
    
    1,374Net Income
    
    $
    5,583
    
    
    $
    4,963
    
    
    $
    5,846
    
    
    $
    4,705Basic earnings per share (2)
    
    $
    0.44
    
    
    $
    0.39
    
    
    $
    0.46
    
    
    $
    0.37Diluted earnings per share
    
    
    0.44
    
    
    
    0.39
    
    
    $
    0.46
    
    
    
    0.37
 2006 Quarter EndedMarch 31
    
    
    June 30
    
    
    September 30
    
    
    December 31Total interest income
    
    $
    23,042
    
    
    $
    23,690
    
    
    $
    24,180
    
    
    $
    23,875Total interest expense
    
    
    7,930
    
    
    
    8,320
    
    
    
    8,791
    
    
    
    8,680Net interest income
    
    
    15,112
    
    
    
    15,370
    
    
    
    15,389
    
    
    
    15,195Provision for loan losses
    
    
    120
    
    
    
    100
    
    
    
    900
    
    
    
    2,776Income from credit activities
    
    
    14,992
    
    
    
    15,270
    
    
    
    14,489
    
    
    
    12,419Other incomeService fees
    
    
    2,736
    
    
    
    3,041
    
    
    
    3,039
    
    
    
    2,949Securities gains
    
    
    62
    
    
    
    176
    
    
    
    577
    
    
    
    (426
    )Other income
    
    
    3,873
    
    
    
    3,474
    
    
    
    3,545
    
    
    
    5,840Other expensesSalaries and benefits
    
    
    7,484
    
    
    
    7,308
    
    
    
    7,397
    
    
    
    7,209Net occupancy expense
    
    
    1,105
    
    
    
    1,083
    
    
    
    1,019
    
    
    
    1,111Equipment expense
    
    
    1,128
    
    
    
    1,143
    
    
    
    1,111
    
    
    
    1,189Data processing service
    
    
    645
    
    
    
    673
    
    
    
    683
    
    
    
    641Other expenses
    
    
    4,529
    
    
    
    4,820
    
    
    
    4,336
    
    
    
    4,995Income before income taxes
    
    
    6,772
    
    
    
    6,934
    
    
    
    7,104
    
    
    
    5,637Income tax expense
    
    
    1,466
    
    
    
    1,568
    
    
    
    1,638
    
    
    
    1,030Net income from continuing operations
    
    
    5,306
    
    
    
    5,366
    
    
    
    5,466
    
    
    
    4,607Discontinued operations:Income (loss) from discontinued operations, net of tax
    
    
    37
    
    
    
    125
    
    
    
    284
    
    
    
    Loss on disposal of discontinued operations, net of tax
    
    
    
    
    
    
    (146
    )
    
    
    (393
    )
    
    
    (221
    )Income (loss) from discontinued operations
    
    
    37
    
    
    
    (21
    )
    
    
    (109
    )
    
    
    (221
    )Net Income
    
    $
    5,343
    
    
    $
    5,345
    
    
    $
    5,357
    
    
    $
    4,386
 Page 73




---



##### 



2006 Quarter EndedMarch 31
    
    
    June 30
    
    
    September 30
    
    
    December 31Basic earnings per share
    
    $
    0.42
    
    
    $
    0.43
    
    
    $
    0.43
    
    
    $
    0.35Diluted earnings per share
    
    
    0.42
    
    
    
    0.42
    
    
    
    0.43
    
    
    
    0.35
 
 (1)
    
    Amounts have been reclassified from amounts previously presented in order to reflect
discontinued operations.(2)
    
    Totals may not sum due to rounding COMMON STOCK MARKET PRICES AND DIVIDENDS
   2007
    
    2006Dividends
    
    
    
    
    
    
    
    
    
    DividendsQuarter Ended
    
    High
    
    Low
    
    Declared
    
    High
    
    Low
    
    DeclaredMarch 31
    
    $
    34.49
    
    
    $
    27.14
    
    
    $
    0.31
    
    
    $
    34.21
    
    
    $
    27.88
    
    
    $
    0.31June 30
    
    
    29.66
    
    
    
    26.67
    
    
    
    0.31
    
    
    
    34.10
    
    
    
    28.19
    
    
    
    0.31September 30
    
    
    29.74
    
    
    
    20.97
    
    
    
    0.31
    
    
    
    32.38
    
    
    
    28.12
    
    
    
    0.31December 31
    
    
    32.40
    
    
    
    24.45
    
    
    
    0.31
    
    
    
    33.50
    
    
    
    29.48
    
    
    
    0.31
  Stock Performance Graph
  
 
 *
    
    Source: SNL Financial LC, Charlottesville, VA. Used with permission. All rights reserved. Page 74




---



##### 



Corporate Headquarters
 Investor Information
 INVESTMENT CONSIDERATIONS
  REGISTRAR AND TRANSFER AGENT
  INFORMATION AVAILABILITY AND ANNUAL REPORT ON FORM 10-K
   Additionally, a copy of the Corporations Annual Report on Form 10-K for the year ended
December 31, 2007 will be supplied without charge (except for exhibits) upon written request.
Please direct all inquiries to Mr. Daniel Warfel, Executive Vice President and Chief Financial
Officer, 366 Walker Drive, State College, PA 16801.
 Page 75




---



##### 



Omega Financial Corporation
 Board of Directors
    
    OfficersDavid B. LeeDavid B. Lee
    
    ChairmanChairmanDonita R. KovalCarl H. Baxter
    
    President and Chief Executive OfficerPresident and owner, Baxter Machine Products, Inc.Daniel L. Warfel, CPAMaureen M. Bufalino
    
    Executive Vice President andSenior Vice President and Regional President, Consultant, Omega Bank
    
    
    
    Chief Financial OfficerPhilip E. Gingerich
    
    David S. RunkSelf employed Real Estate Appraiser and Consultant, Retired
    
    Executive Vice PresidentJodi L. Green
    
    Walter KayShareholder and Director,
    
    Chief Information OfficerSeligman, Friedman & Company, P.C.Certified Public Accountants and Consultants
    
    Teresa M. Ciambotti, CFASenior Vice President, Corporate ControllerRobert A. Hormell
    
    
    
    and Director of Investor RelationsAssistant Director of Susquehanna Economic DevelopmentAssociation  Council of Governments (SEDA-COG), Retired
    
    Byron Mertz, IIISenior Vice PresidentDonita R. KovalPresident and Chief Executive OfficerStephen M. KrentzmanPresident and owner, Joe Krentzman & Son, Inc.Scrap Processor and BrokerD. Stephen MartzRetired Officer, Omega Financial CorporationStanton R. SheetzPresident and C.E.O.Sheetz, Inc.Retail Convenience StoresRobert A. SzeyllerRetired Managing Partner, Pennsylvania Financial Group, Inc.Pension and Insurance Consulting FirmDennis Van BenthuysenPresident and owner, The Colonial Furniture Company
 Page 76




---



##### 



Omega Bank
 Board of Directors
    
    OfficersDavid B. Lee, Chairman
    
    David B. LeeCarl H. Baxter
    
    
    
    ChairmanMaureen M. Bufalino
    
    Donita R. KovalRodney L. Fletcher
    
    
    
    President and Chief Executive OfficerAllen E. Gibboney, Esq
    
    Daniel L. Warfel, CPAPhilip E. Gingerich
    
    
    
    Executive Vice President, Chief Financial OfficerJodi L. Green
    
    David S. RunkRobert A. Hormell
    
    
    
    Executive Vice President, Chief Operating OfficerFrederick J. Kissinger
    
    Maureen M. BufalinoDonita R. Koval
    
    
    
    Regional President, Wilkes-Barre RegionStephen M. Krentzman
    
    Bruce R. Erb, CFP, CTFAD. Stephen Martz
    
    
    
    Wealth Management PresidentStanton R. Sheetz
    
    Byron Mertz, IIIRobert A. Szeyller
    
    
    
    Regional President, Susquehanna Valley RegionDennis Van Benthuysen
    
    John R. Franks, Jr.Executive Vice President, Branch AdministrationThomas BixlerSenior Vice President, Commercial LendingTeresa M. Ciambotti, CFASenior Vice President, Corporate ControllerDavid N. WellsSenior Vice President, Customer Relationship ManagementGary P. CookBank Capital Services President
 Mid-Penn Insurance Associates, Inc.
 
 Bank Capital Services, Subsidiary of Omega Bank
  Omega Financial Mortgage Solutions, LLC*
  
 *
    
    joint venture, not a subsidiary Page 77