Omega Financial Corporation




                            1998 ANNUAL REPORT [LOGO]


<PAGE>

                   TO OUR SHAREHOLDERS, CUSTOMERS AND FRIENDS,
                   -------------------------------------------

                                                                         [PHOTO]

     In a year of  narrowing  interest  spreads,  we are  pleased to report that
Omega Financial  Corporation's  earnings for 1998 are up 0.7% over 1997.  1998's
net income  figure of $17.092  million was $124,000  higher than 1997's  $16.968
million,  and the  Corporation's  return on average  assets of 1.66% was in line
with last year's 1.67%.

     Our net interest margin and income from credit activities  figures for 1998
did reflect the declining rate environment.  Omega's net interest margin for the
year  declined by 5 basis  points from 5.08% to 5.03% on a fully tax  equivalent
basis, while income from credit activities was down 1.2% to $45.558 million from
$46.091 million in 1997.

     Nevertheless,  earnings per share were up. The Corporation reported diluted
earnings per share of $1.79 for the year,  1.1% over the $1.77 reported in 1997.
As a result, average shareholders' equity increased 8.8% over 1997.

     Our increased  profitability  and our growth in capital  affected return on
equity. Our return on average equity (ROE) was 11.35%, compared to 1997's figure
of 12.26%. In a move to reduce the impact of rising capital on ROE, we pushed up
our annual cash dividend  again in 1998. We increased the dividend to $0.80 from
$0.65 last year, a 23.1% increase.

     On the expense side,  despite  being faced with  technology  upgrades,  the
Corporation  did well.  The item that had a significant  impact on  non-interest
expenses for the year was the Corporation's  decision to write off the remaining
goodwill and core deposit  intangible from a previous  acquisition.  The related
charge  to  earnings  of $1.9  million  before  tax was  largely  offset  by our
securities gains, minimizing any effect on overall earnings.

     As to our Year 2000 preparedness,  by the end of the third quarter of 1998,
Omega had achieved the goal of completing the first three phases of our plan. At
the end of December,  Omega and its vendors had  completed  more than 75% of the
required  testing on our mission  critical  systems.  We anticipate that testing
should be complete by the end of March 1999. To date, we are very  satisfied and
believe that the results of our testing assure us a successful  transition  into
the Year 2000.

     With  the  year-end  came  the  news  that  Omega's   reputation  for  good
performance  is again being  heralded  across the  country.  Based in  Portland,
Oregon,  The Red Chip Review covers small-cap stocks. Its 


--------------------------------------------------------------------------------
2

<PAGE>

analysts are regularly quoted in the financial press.

     We were very  pleased  to learn  that  Omega was  profiled  in the  Review.
Characterizing  Omega as a Corporation with stringent credit standards,  a solid
loan strategy, a strong capital ratio and a history of good dividend yields, the
article  noted that Omega held a tighter rein on expenses than most of the banks
the Review follows.

     The Red Chip Review's  headline "Happy Valley  Bank...Central  Pennsylvania
worships at the shrine of Penn State football -- while trusting Omega  Financial
Corporation  with a good  bit of its  money"  hints  at  another  secret  of our
success...service to our communities.

     With Penn State being only one of several  fine schools in the market area,
the eight  central  Pennsylvania  counties  we serve are part of  Pennsylvania's
academic heartland.  Because of the opportunity the area presents, we square off
with some of the nation's largest financial institutions.

     To compete and succeed,  we must prove to customers each day that being the
hometown bank equates to responsiveness and exceptional service.  Among the many
initiatives in 1998 to support this  commitment,  we marketed  special  low-rate
residential  mortgages and aggressively  promoted home equity loans. We expanded
our  limited-service  office  locations and added online benefits access for our
Club account and Golden Choice Advantage members.

     Through  these  sorts of  initiatives  and with  the  contributions  of our
directors and of our staff members to our mission,  we deliver on our commitment
to  service.  In  pursuing  our  mission,  we believe  that we will  continue to
solidify the foundation of our continued  strong  performance  for next year and
the years to come.



              Sincerely,

              /s/David B. Lee                            /s/D. Stephen Martz


              David B. Lee                               D. Stephen Martz
              Chairman and Chief                         President and Chief
                Executive Officer                          Operating Officer



--------------------------------------------------------------------------------
                                                                               3

<PAGE>


                        CORPORATE DIRECTORS AND OFFICERS
                        --------------------------------


The lists on this page and the  following  two pages  present the  directors and
officers of Omega Financial Corporation as of December 31, 1998.

BOARD OF DIRECTORS

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

Merle K. Evey, Esq.
     Attorney at Law

Robert T. Gentry
     President of Penn Central National Bank

Philip E. Gingerich
     Self employed Real Estate Appraiser and Consultant

David B. Lee, Chairman
     Chief Executive Officer of Omega Financial Corporation

D. Stephen Martz
     President and Chief Operating Officer of Omega
     Financial Corporation

Robert N. Oliver
     Owner, Oliver Farms

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

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

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


DIRECTORS EMERITI

Ned C. Cummings
William E. Henry, O.D.
Albert N. Masood
Don C. Meyer
John R. Miller, Jr., Esq.
Samuel D. Zeiders, Jr., D.D.S.
David K. Goodman, Sr.


                                    OFFICERS

David B. Lee ...............................Chairman and Chief Executive Officer
D. Stephen Martz ..........................President and Chief Operating Officer
Daniel L. Warfel, CPA ......Executive Vice President and Chief Financial Officer
David N. Thiel ..............................Senior Vice President and Secretary
JoAnn N. McMinn ..................Senior Vice President and Corporate Controller
Donita R. Koval ....................Senior Vice President, Credit Administration
Teresa M. Ciambotti ............................Vice President, Funds Management
Ronald A. Donaldson .......................Vice President and Operations Officer
Robert A. Frederick ....................Vice President and Director of Marketing
William F. Frey ...........................Vice President and Compliance Officer
Faye L. Maring ...................Vice President and Director of Human Resources
Lowell I. Rohrer ..................Vice President and Manager of Data Processing
R. Keith Sipe ..................................Vice President and Chief Auditor
Robin R. Weikel ..........................Vice President and Regional Controller


                                CORPORATE ADDRESS
                                366 Walker Drive
                                  P.O. Box 619
                     State College, Pennsylvania 16804-0619


              PRINCIPAL SUBSIDIARIES OF OMEGA FINANCIAL CORPORATION

Omega Bank, N.A.
P.O. Box 298
State College, PA  16804

Hollidaysburg Trust Company
224 Allegheny Street
Hollidaysburg, PA  16648

Penn Central National Bank
431 Penn Street
Huntingdon, PA  16652

Central Pennsylvania Investment Company
1409 Foulk Rd., Suite 102
Wilmington, DE  19803

Central Pennsylvania Life Insurance Company
1421 E. Thomas Road
Phoenix, AZ  85014


--------------------------------------------------------------------------------
4

<PAGE>

                           BANK DIRECTORS AND OFFICERS
                           ---------------------------


OMEGA BANK, N.A.
----------------------------

Board of Directors
------------------
Raymond F.  Agostinelli       Stephen M. Krentzman
Richard L. Campbell, Esq.     David B. Lee
Mary Jane Crain               James W. Powers, Sr.
Philip E. Gingerich           Richard B. Roush
Frederick J. Kissinger        Robert A. Szeyller
                              Charles H. Zendt, Jr.

Directors Emeriti
-----------------
David D. Borland              H. Richard Ishler, M.D.
J. Harold Boyer               Jonas B. Kauffman, Jr.
Ned C. Cummings               Nathan H. Krauss
Herbert C. Graves             Don C. Meyer
Darl H. Heller                John R. Miller, Jr., Esq.
William E. Henry, O.D.        George R. Smith
                              Samuel D. Zeiders, Jr., D.D.S.

Officers
--------
David B. Lee ..........................................Chairman, President and
                                                       Chief Executive Officer
Charles H. Zendt, Jr. ................................Executive Vice President
C. Leonard Eby, Jr. ............................Senior Vice President, Lending
Dennis E. Hampton ................................Senior Vice President, Trust
William D. Karch ...............................Senior Vice President, Lending
David N. Thiel ............................Senior Vice President and Secretary
Kimberly A. Benner ......................................Vice President, Trust
John E. Gravish ..............................Vice President, Regional Lending
Ann K. Guss ..................................Vice President, Mortgage Lending
Steven W. Grim .............................Vice President, Commercial Lending
Ronald S. Haring ...........................Vice President, Commercial Lending
Susan Kratzer .................................................Vice President,
                                                Regional Branch Administration
Eric F. Kraytz .............................Vice President, Commercial Lending
Thomas C. Landis ......................................Vice President, Lending
Mary Grace Kudey ..............................................Vice President,
                                                            Commercial Lending
Francis C. Moyer ...............................Vice President, Branch Manager
Robert C. Snyder ..............................................Vice President,
                                                         Branch Administration
Jesse Weaver ............................................Vice President, Trust
Thomas D. Weldon ........................................Vice President, Trust


Regional Bank Boards
--------------------

Centre/Clinton Region

Larry R. Breon                C. Guy Rudy
Charles L. Frazier            Daniel C. Schrack
Jay R. Montgomery             William E. Young, D.O.

Mifflin/Juniata Region

Thomas G. Clark               Steven L. Palm
Jeffrey K. Creighton          Ronald C. Shearer
Ralph A. Germak               Kenneth O. Stuck, D. Ed.
Jerry Leach                   William S. Taylor, III
Roy A. Leister                Mervin R. Zendt

Montour Region

James P. Garman               Thomas N. Mertz
Carol Linnet


Directors Emeriti
-----------------
William Bamat                 Lee E. Sausman
Miles X. Clevenstine          E. J. Straley, V.M.D.
James G. Corman               Jay Struble
C. Richard Dimm               Peter Swistock, Sr.
Robert L. Homan               Elwood A. Way
Lawrence L. Hoverter          Warren K. Zook


--------------------------------------------------------------------------------
                                                                               5
<PAGE>

                           BANK DIRECTORS AND OFFICERS
                           ---------------------------


HOLLIDAYSBURG TRUST COMPANY
----------------------------

Board of Directors
------------------
Ralph W.  Arthur, Jr.         D. Stephen Martz
Merle K. Evey, Esq.           Stanton R. Sheetz
Rex W. Hershberger            Joseph Tanner
David C. Hileman              Vincent C. Turiano
John P. Kinney

Directors Emeriti
-----------------
Charles I. Kreider            Dorothea D. Nelson
Joseph R. Good                Lester E. Plank
James J. Madden               Roy F. Rumbaugh

Officers
--------
D. Stephen Martz ...........................................Chairman, President,
                                                         Chief Executive Officer
Rex W. Hershberger ................................................Vice Chairman
Vincent C. Turiano ....................................Executive Vice President,
                                                         Chief Operating Officer
Bruce R. Erb .......................................Senior Vice President, Trust
Richard A. Scholton ..............................Senior Vice President, Lending
Steven C. Lewis .......................................Vice President, Community
                                                              Banking, Treasurer
Dennis C. O'Connor ...................................Vice President, Commercial
                                                                        Services
Roger W. Oswald ............................Vice President, Agricultural Manager


PENN CENTRAL NATIONAL BANK
----------------------------

Board of Directors
------------------
Edward J. Anderson            Robert T. Gentry
Phyllis J. Bard               Samuel L. Hinish
Carl H. Baxter                Robert N. Oliver
Ralph B. Everhart

Directors Emeriti
-----------------
Harry M. Enyeart              J. Melvin Isett
John R. Gates                 Albert N. Masood
David K. Goodman, Sr.         William E. Swigart, Jr.

Officers
--------
Samuel L. Hinish .....................................................Chairman
Robert T. Gentry ...........................President, Chief Executive Officer
John R. Franks ......................................Executive Vice President,
                                                       Chief Operating Officer
William J. Bishop ..............................................Vice President
Ronald A. Casner ...............................................Vice President
Judith G. Fleming .......................................Vice President, Trust
Daniel P. Nead ........................................Vice President, Lending



--------------------------------------------------------------------------------
6
<PAGE>


                    COMMON STOCK MARKET PRICES AND DIVIDENDS
                    ----------------------------------------

The common stock of Omega  Financial  Corporation  is traded on The Nasdaq Stock
Market  under  the  symbol  OMEF.  As  of  December  31,  1998,  the  number  of
shareholders of record of the Corporation's common stock was 2,811.

The following table sets forth,  for the periods  indicated (1) the high and low
sale prices and (2) cash dividends:

                                    1998                       1997
                         ------------------------   ------------------------
                                            Cash                       Cash
                                          Dividends                  Dividends
Quarter Ended              High     Low     Paid      High     Low     Paid
                         -------  -------  ------   -------  -------  ------
March 31 .............   $ 39.00  $ 34.25  $ 0.18   $ 28.00  $ 23.33  $ 0.15
June 30 ..............     39.50    33.75    0.20     35.50    27.00    0.16
September 30 .........     37.00    29.63    0.20     36.88    34.75    0.16
December 31 ..........     34.00    28.63    0.22     36.75    33.13    0.18

While the  Corporation  expects to  continue  its  policy of  regular  quarterly
dividend payments, no assurance of future dividend payments can be given. Future
dividend payments will depend upon maintenance of a strong financial  condition,
future  earnings and capital and  regulatory  requirements.  See  "Shareholders'
Equity  and  Capital  Requirements"  and Note 18 of the  Notes  to  Consolidated
Financial  Statements.  Dividends  on the common  stock are also  subject to the
prior payment of dividends on the  Corporation's  Series A Preferred  Stock. See
Note 15 of the Notes to Consolidated Financial Statements.

The  following  firms  have  chosen  to  make  a  market  in  the  stock  of the
Corporation. Inquiries concerning their services should be directed to:

Legg Mason Wood Walker, Inc.            Janney Montgomery Scott, Inc.
141 West Beaver Avenue                  1801 Market Street
State College, PA  16801                Philadelphia, PA  19103
(814-234-7300)                          (800-526-6397)

F. J. Morrissey & Co.                   Ryan Beck & Co.
1700 Market St. Suite 1420              80 Main Street
Philadelphia, PA  19103-3913            West Orange, NJ  07052
(800-842-8928)                          (800-342-2325)

Ferris, Baker Watts, Inc.               ABN AMRO Chicago Corporation
6 Bird Cage Walk                        208 S. LaSalle Street
Hollidaysburg, PA  16648                Chicago, IL  60604
(800-343-5149)                          (800-621-0686)


                                    FORM 10-K

A copy  of the  Corporation's  Annual  Report  to the  Securities  and  Exchange
Commission  on Form 10-K for the year ended  December  31, 1998 will be supplied
without  charge (except for exhibits)  upon written  request.  Please direct all
inquiries to Mr. David N. Thiel, 366 Walker Drive, State College, PA 16801.

                            INVESTMENT CONSIDERATIONS

In analyzing  whether to make, or to continue,  an investment in Omega Financial
Corporation,  investors  should consider,  among other factors,  the information
contained in this Annual Report and certain investment  considerations and other
information  more  particularly  described in Omega's Annual Report on Form 10-K
for the year  ended  December  31,  1998,  a copy of which  can be  obtained  as
described above.

                         ANNUAL MEETING OF SHAREHOLDERS

The Annual Meeting of Shareholders of Omega Financial  Corporation  will be held
at 10:00 a.m., Monday,  April 19, 1999 at The Penn Stater, 215 Innovation Blvd.,
Penn State Research Park, State College, Pennsylvania.

                          REGISTRAR AND TRANSFER AGENT

Omega Bank, N.A., Trust Department,  P.O. Box 298, State College,  PA 16804-0298
(814-237-7641)

                            INFORMATION AVAILABILITY

Omega  Financial  Corporation  news releases are available by fax 24 hours a day
from Company News On-Call at (800)  758-5804,  extension  653250.  Quarterly and
annual reports, a corporate  profile,  stock quotes and other financial data can
be   accessed   through   the   Omega   Financial   Corporation   web   site  at
www.omegafinancial.com.


--------------------------------------------------------------------------------
                                                                               7

<PAGE>

                            SELECTED FINANCIAL DATA
                            -----------------------

The  following  selected  financial  data of  Omega  Financial  Corporation  and
subsidiaries  for the five  years  ended  December  31,  1998  should be read in
conjunction  with the  consolidated  financial  statements  of  Omega  Financial
Corporation  and the notes thereto,  which are set forth elsewhere in the Annual
Report.

                           FIVE-YEAR FINANCIAL SUMMARY

<TABLE>
<CAPTION>
BALANCE SHEET INFORMATION                                    1998            1997            1996            1995            1994
                                                         --------------------------------------------------------------------------
at December 31                                                           (In thousands of dollars, except share data)
<S>                                                      <C>             <C>             <C>             <C>             <C>       
Assets .............................................     $1,062,704      $1,015,903      $1,007,345      $  994,840      $  939,953
  Deposits .........................................        870,660         840,775         846,030         850,182         801,736
  Loans, net .......................................        722,967         691,893         696,597         703,125         647,933
  Investment securities ............................        261,380         249,817         241,846         219,708         227,822
  Long term debt (including ESOP debt) .............          8,837           9,034           9,213          10,073           5,568
  Shareholders' equity .............................        153,980         142,432         135,885         124,171         113,109
  Number of shares outstanding - common * ..........      8,960,197       8,879,257       9,050,889       9,034,449       8,978,603
  Number of shares outstanding - preferred .........        219,781         219,781         219,781         219,781         219,781

INCOME STATEMENT INFORMATION
Years Ended December 31
  Total interest income ............................     $   75,288      $   76,998      $   76,720      $   72,973      $   65,090
  Net interest income ..............................         46,618          47,121          46,400          43,956          41,443
  Provision for loan losses ........................          1,060           1,030             979             713             623
  Income before income taxes .......................         24,714          24,465          23,354          19,802          17,662
  Income tax expense ...............................          7,622           7,497           7,127           5,733           4,877
  Net income .......................................         17,092          16,968          16,227          14,069          12,785

PER COMMON SHARE DATA*
  Net income - basic ...............................     $    11.35      $     1.85      $     1.75      $     1.52      $     1.39
  Net income - diluted .............................           1.79            1.77            1.69            1.47            1.34
  Cash dividends - common ..........................           0.80            0.65            0.56            0.48            0.44
  Book value - common ..............................          16.95           15.83           14.83           13.67           12.54
</TABLE>

                                FINANCIAL RATIOS
<TABLE>
<CAPTION>
                                                               1998            1997            1996            1995            1994
                                                         --------------------------------------------------------------------------
<S>                                                           <C>             <C>             <C>             <C>             <C>   
Return on average equity ...........................          11.35%          12.26%          12.51%          11.90%          11.75%
Return on average assets ...........................           1.66            1.67            1.61            1.47            1.36
Dividend payout - common ...........................          41.94           34.41           31.26           30.65           30.80
Average equity to average assets ...................          14.67           13.64           12.85           12.35           11.61
</TABLE>

*    Prior period per share  information has been restated for the effect of the
     3 for 2 stock  split in the  form of a  dividend  in  1997,  as well as the
     adoption of SFAS No. 128, Earnings per Share in 1997.


--------------------------------------------------------------------------------
8
<PAGE>

                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                             OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS
                            -------------------------


This  discussion  concerns  Omega  Financial  Corporation  and the  consolidated
results of its five active subsidiaries  ("Omega" or the  "Corporation"),  Omega
Bank, N.A. ("Omega Bank"),  Hollidaysburg Trust Company ("Hollidaysburg"),  Penn
Central National Bank ("Penn Central"),  Central Pennsylvania Investment Company
("CPI") and Central Pennsylvania Life Insurance Company ("CPLI"). The purpose is
to focus on information  concerning  Omega's financial  condition and results of
operations  which  is not  readily  apparent  from  the  consolidated  financial
statements.  In order to obtain a clear  understanding of this  discussion,  the
reader should reference the consolidated financial statements, the notes thereto
and other financial information presented in this Annual Report.


                           FORWARD LOOKING STATEMENTS

The  information  contained  in this  Annual  Report  contains  forward  looking
statements (as such term is defined in the  Securities  Exchange Act of 1934 and
the regulations thereunder),  including without limitation, statements as to the
future loan and deposit  volumes,  the allowance and provision for possible loan
losses, future interest rates and their effect on Omega's financial condition or
results of operations,  the classification of Omega's investment portfolio, Year
2000  compliance  and its effect on the  Corporation's  financial  condition  or
results of operation and other statements as to trends or management's  beliefs,
expectations or opinions.  Such forward looking  statements are subject to risks
and  uncertainties and may be affected by various factors which may cause actual
results  to differ  materially  from  those in the  forward  looking  statements
including  without  limitation,  the effect of economic  conditions  and related
uncertainties,  the effect of  interest  rates on the  Corporation,  federal and
state government regulation, competition, and the time and expense of addressing
the Year 2000 issue. Certain of these risks, uncertainties and other factors are
discussed in this Annual Report or in Omega's Annual Report on Form 10-K for the
year ended  December 31,  1998, a copy of which may be obtained  from Omega upon
request and without charge (except for the exhibits thereto).


                              NATURE OF OPERATIONS

Omega  Financial  Corporation is a bank holding company  operating  primarily in
central  Pennsylvania,  with the purpose of delivering financial services within
its  local  market.   Consisting   of  three  banks  and  two  active   non-bank
subsidiaries, Omega Financial Corporation provides retail and commercial banking
services  through  44  offices  in Centre,  Clinton,  Mifflin,  Juniata,  Blair,
Huntingdon,  Bedford and Montour counties. Omega's banks provide a full range of
banking  services  including  an  automatic  teller  machine  network,  checking
accounts,  NOW accounts,  savings  accounts,  money market accounts,  investment
certificates,  fixed rate  certificates of deposit,  club accounts,  secured and
unsecured  commercial and consumer loans,  construction and mortgage loans, safe
deposit facilities,  credit loans with overdraft checking protection and student
loans.  The  banking  affiliates  also  provide  a  variety  of trust  services.
Management believes the Corporation has a relatively stable deposit base with no
major  seasonal  depositor  or group of  depositors.  Most of the  Corporation's
commercial customers are small and mid-sized businesses in central Pennsylvania.



--------------------------------------------------------------------------------
                                                                               9
<PAGE>

                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                             OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS
                            -------------------------

                                    OVERVIEW

Omega  functions  as  a  financial  intermediary  and  therefore  its  financial
condition should be viewed in terms of changes in its uses and sources of funds.
Table 1 depicts average daily balances,  the dollar change and percentage change
for the past two years.  This table is  referenced  for the  discussion  in this
section.

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

<TABLE>
<CAPTION>
                                             1998          Increase(Decrease)      1997           Increase(Decrease)       1996
                                           Average      ---------------------     Average      ----------------------     Average
                                           Balance         Amount          %      Balance         Amount           %      Balance
                                         -----------    -----------      ----   -----------    -----------       ----   -----------
<S>                                      <C>            <C>             <C>     <C>            <C>               <C>    <C>        
          Funding Uses:
          -------------
Loans .................................  $   676,664    $     2,552       0.4%  $   674,112    $   (12,429)      (1.8)% $   686,541
Tax-exempt loans ......................       27,355          8,336      43.8        19,019          1,301        7.3        17,718
Investment securities .................      194,141        (14,802)     (7.1)      208,943         16,454        8.5       192,489
Tax-exempt investment securities ......       52,477         14,751      39.1        37,726          3,113        9.0        34,613
Interest bearing deposits .............          761            156      25.8           605            (52)      (7.9)          657
Federal funds sold ....................       16,256         (2,617)    (13.9)       18,873         (2,619)     (12.2)       21,492
                                         -----------    -----------      ----   -----------    -----------       ----   -----------
     Total interest earning assets ....      967,654          8,376       0.9       959,278          5,768        0.6       953,510
Non-interest earning assets ...........       70,949          3,865       5.8        67,084           (844)      (1.2)       67,928
Less: Allowance for loan losses .......      (11,924)          (169)      1.4       (11,755)            40       (0.3)      (11,795)
                                         -----------    -----------      ----   -----------    -----------       ----   -----------
     Total uses .......................  $ 1,026,679    $    12,072       1.2%  $ 1,014,607    $     4,964        0.5%  $ 1,009,643
                                         ===========    ===========      ====   ===========    ===========       ====   ===========

          Funding Sources:
          ----------------
Interest bearing demand deposits ......  $   229,484    $    10,180       4.6%  $   219,304    $    (2,600)      (1.2)% $   221,904
Savings deposits ......................      102,636            515       0.5       102,121         (2,136)      (2.0)      104,257
Time deposits .........................      396,457        (20,939)     (5.0)      417,396           (610)      (0.1)      418,006
Repurchase agreements .................       14,235          6,088      74.7         8,147          6,334      349.4         1,813
Other borrowed funds ..................        5,867            256       4.6         5,611         (1,303)     (18.8)        6,914
                                         -----------    -----------      ----   -----------    -----------       ----   -----------
     Total interest bearing liabilities      748,679         (3,900)     (0.5)      752,579           (315)      (0.0)      752,894
Demand deposits .......................      114,382          3,862       3.5       110,520         (2,526)      (2.2)      113,046
Other liabilities .....................       13,041           (107)     (0.8)       13,148           (863)      (6.2)       14,011
Shareholders' equity ..................      150,577         12,217       8.8       138,360          8,668        6.7       129,692
                                         -----------    -----------      ----   -----------    -----------       ----   -----------
     Total sources ....................  $ 1,026,679    $    12,072       1.2%  $ 1,014,607    $     4,964        0.5%  $ 1,009,643
                                         ===========    ===========      ====   ===========    ===========       ====   ===========
</TABLE>

Omega's  funding sources have increased over the last two years at rates of 1.2%
and 0.5% in 1998 and 1997, respectively. In 1998, the increased sources of funds
came primarily from  shareholders'  equity,  through the income stream, as total
deposits and other  interest  bearing  liabilities  were  essentially  flat. The
$12,072,000 of increased funds were used primarily for loan  production,  as 69%
of these available funds were invested in tax-exempt  loans.  During 1997, total
average  deposits and interest bearing  liabilities  declined by $2,841,000 from
1996, with funding source increases rising from  shareholders'  equity.  In this
year, with average loans declining,  the available funds were utilized primarily
for funding purchases of investment securities.

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


--------------------------------------------------------------------------------
10

<PAGE>

                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                             OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS
                            -------------------------

                                      LOANS

In 1998,  total average loans were  $704,000,000  as compared to $693,100,000 in
1997,  an increase of  $10,900,000,  or 1.6%.  During the year,  the  customer's
preference  was for fixed rate loans as opposed to  variable  rate.  On average,
fixed rate loans increased by $62,200,000,  or 16.2%,  while variable rate loans
declined by $51,400,000, or 16.7%.

The fixed  rate loan  increases  were made up of  increases  of  $43,100,000  in
taxable  commercial  loans,   $15,300,000  in  personal  residential  loans  and
$10,200,000  in tax-exempt  commercial  loans.  Other  personal fixed rate loans
declined by $6,300,000.

                            Average Asset Mix Change

                                    Average           Average
                                     Loans           Investments
                                     -----           -----------
                  1994               67.5%              26.8%
                  1995               70.3%              24.1%
                  1996               69.8%              24.7%
                  1997               68.3%              26.7%
                  1998               68.6%              26.5%

Variable rate loan decreases were made up of decreases of $37,900,000 in taxable
commercial  loans,  $8,000,000  in personal  residential  loans,  $1,800,000  in
tax-exempt  commercial  loans and  $2,100,000 in credit card loans  outstanding.
(The entire  credit  card  portfolio  was sold in December of 1997).  Management
believes  that this shift from  variable to fixed rate was  attributable  to the
flat yield curve  present  during the year,  and the  customers'  perception  of
future rate environments.

In 1997,  total average loans were  $693,100,000  as compared to $704,300,000 in
1996, a decrease of $11,200,000, or 1.6%. The loan category that contributed the
most to this decrease was personal installment loans, specifically indirect auto
loans.  Balances in this category averaged $13,300,000 less in 1997 than in 1996
due  to  heavy  competition  from  the  auto   manufacturers   financing  plans.
Additionally,  because of concerns of overall increased levels of consumer debt,
Omega  tightened its credit  standards.  In December of 1997, the  Corporation's
credit card portfolio was sold. Its outstanding  balances were $2,200,000 at the
time of the sale.

Emphasis  in the  consumer  lending  area  in 1997  was  placed  on  residential
mortgages  and  home-equity  products,  where  balances  at  year-end  1997 were
$276,700,000, or $24,900,000 higher than December 31, 1996. Commercial loans and
commercial real estate loans in total  maintained  similar  balances on December
31, 1997 as in 1996,  however,  commercial real estate loans grew as commercial,
financial and agricultural  loans declined.  In 1997, new loan demands kept pace
with pay-offs.

The loan  portfolio as of December 31, 1998 was comprised of 57% consumer  loans
and 43% commercial loans (including  construction),  as compared to 58% and 42%,
respectively,  at  December  31,  1997.  See  Note 5 of  Notes  to  Consolidated
Financial Statements.


--------------------------------------------------------------------------------
                                                                              11
<PAGE>

                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                             OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS
                            -------------------------

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

Management  has been  monitoring  the activity  within the loan  portfolio  very
carefully  and  successfully  competed  within its market for real estate loans,
both commercial and residential.  Pricing  standards were cautiously  lowered in
order to attract growth.  Omega intends to aggressively pursue growth in each of
the loan  categories  again during 1999. A competitive  pricing  environment  is
expected  and may force Omega to again lower its pricing  structure  in order to
continue to maintain and build loan volumes.

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

Loan loss reserves have been  established in order to absorb  probable losses on
existing loans. An annual  provision is charged to current  earnings to maintain
the reserve at adequate  levels.  Charge-offs  and recoveries are recorded as an
adjustment  to the reserve.  The  allowance for loan losses at December 31, 1998
was 1.63% of total  loans,  net of  unearned  discount,  as compared to 1.70% of
total loans at the end of 1997. The allowance decreased $21,000 from 1997 as net
charge-offs of $1,081,000 exceeded the provision of $1,060,000.  Net charge-offs
for 1998 and 1997 were 0.15% of average loans.  Commercial loans represented 52%
of the loans charged off in 1998,  while personal loans  represented  70% of the
loans charged off in 1997. Because of the level of non-performing  loans and the
increase in net  charge-offs  in both 1998 and 1997,  management  increased  the
provision  for loan  losses in both  years.  Non-performing  loans were 0.90% of
loans as of December 31, 1998, and 1.00% of loans as of December 31, 1997.  (See
Table  2).  The  increase  in  non-accrual  loans is due  primarily  to two loan
relationships  that were  classified to non-accrual  status during 1998,  with a
combined  outstanding  balance of $954,000.  Accruing  loans past due 90 days or
more  significantly  decreased in 1998.  Subsequent to year-end  1998, one large
loan that had been  classified as  non-accrual  since April 1997 was repaid with
full  recovery  of  principal  and  interest.  The balance  was  $2,116,000  and
significantly  improves the non-performing loan ratio.  Excluding this loan, the
year-end 1998 non-performing  loan balance would have been $4,406,000,  or 0.61%
of loans.

Management  believes that the allowance for loan losses is adequate,  based upon
its  analysis  of the  loans,  current  economic  conditions  and  certain  risk
characteristics  of the loan  portfolio.  This  determination  is made through a
structured review of impaired loans, non-performing loans and certain performing
loans designated as potential problems.

At  December  31,  1998,  non-performing  loans  (as  defined  in  Table 2) as a
percentage  of the  allowance for loan losses were 55.4% as compared to 58.6% at
December 31, 1997.  Of the  $6,522,000 of  non-performing  loans at December 31,
1998,  $4,761,000 were  collateralized  with real estate,  $1,641,000 with other
assets, and $120,000 were unsecured.

                          Allowance for Losses to Loans
                                   at Year End
                         ------------------------------

                         1994                     1.71%
                         1995                     1.66%
                         1996                     1.70%
                         1997                     1.70%
                         1998                     1.63%


--------------------------------------------------------------------------------
12
<PAGE>

                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                             OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS
                            -------------------------

                                     TABLE 2
                              Non-Performing Loans

<TABLE>
<CAPTION>
                                                                            December 31,
                                                   ------------------------------------------------------
                                                     1998        1997        1996        1995        1994
                                                   ------      ------      ------      ------      ------
                                                                       (In thousands)
<S>                                                <C>         <C>         <C>         <C>         <C>   
Non-accrual loans ...............................  $5,627      $4,762      $2,079      $1,932      $1,596
Accruing loans past due 90 days or more .........     682       2,103       1,241       2,697       1,317
Restructured loans ..............................     213          47          14          --          44
                                                   ------      ------      ------      ------      ------
Total non-performing loans ......................  $6,522      $6,912      $3,334      $4,629      $2,957
                                                   ======      ======      ======      ======      ======
</TABLE>

Note 6 to the  Consolidated  Financial  Statements  summarizes the allowance for
loan  losses  for each of the last  five  years.  Management's  estimate  of net
charge-offs for 1999 follows (in thousands):

           Commercial, financial and agricultural.............. $   311
           Real estate - commercial............................     183
           Real estate - mortgage..............................      --
           Personal............................................     566
                                                                -------
           Total............................................... $ 1,060
                                                                =======


                          Non-Performing Loans to Loans
                                   at Year End
                          -----------------------------

                           1994                 0.43%
                           1995                 0.66%
                           1996                 0.48%
                           1997                 1.00%
                           1998                 0.90%

                        Net Charge-Offs to Average Loans
                        --------------------------------

                           1994                 0.12%
                           1995                 0.08%
                           1996                 0.12%
                           1997                 0.15%
                           1998                 0.15%


                                   INVESTMENTS

Average investments, defined to include all interest earning assets except loans
(i.e.  investment  securities  available for sale (at market value),  investment
securities held to maturity,  federal funds sold and interest bearing deposits),
increased by $1,300,000,  or 0.5%, during 1998, after increasing by $18,700,000,
or 7.4% during 1997.  Average gross  unrealized  gains on investment  securities
increased  by  $3,800,000  in 1998 as  compared  to 1997  and  interest  bearing
deposits with other  financial  institutions  remained  relatively  flat,  while
average  federal funds sold declined by $2,600,000.  The federal funds sold were
reduced to help fund loan growth.  Investment  securities in total remained flat
in 1998 when compared to 1997,  however,  funds from maturing taxable securities
were used to purchase  tax-exempt  securities.  Although  tax-exempt  securities
carry a lower rate than taxable securities, the tax exemption of interest income
increases  the  yield  by  lowering  the tax  expense  (see  Note 11 to Notes to
Consolidated Financial Statements).

During 1997, average investments  increased by $18,700,000,  or 7.4%. Because of
reduced  loan  volumes in 1997,  funds from loan  run-off  and  pay-offs  became
available, as did other non-deposit sources of funding (short term borrowings),


--------------------------------------------------------------------------------
                                                                              13
<PAGE>

                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                             OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS
                            -------------------------

for  investing  opportunities  outside the loan market.  This  accounted for the
investment  balance  increase.  It is important to note that  $1,900,000  of the
increase in investments is due to the mark-to-market adjustment necessary on the
portion of the portfolio that is classified as available for sale.

The investment area is managed  according to internally  established  guidelines
and quality standards. Omega segregates its investment securities portfolio into
two  classifications:  those held to maturity and those  available for sale. The
determination  of which  portfolio to hold each  security is made at the time of
purchase,  based on management's  intent. Omega classifies all marketable equity
investments as available for sale.  Debt  securities are classified as available
for sale when the  intent is for the  security  to be  available  to be used for
strategic  asset/liability  management  purposes such as to manage interest rate
risk,  prepayment risk or liquidity needs.  Securities are classified as held to
maturity when it is management's intent to hold these securities until maturity,
for matching against longer term funding.  Note 4 to the Consolidated  Financial
Statements  analyzes  the  investment   securities   (including  the  tax-exempt
investment  securities).  At December 31,  1998,  the market value of the entire
securities  portfolio  exceeded  amortized  cost by  $8,365,000  as  compared to
December  31,  1997  when  market  value  was  greater  than  amortized  cost by
$7,677,000. The weighted average maturity of the investment portfolio is 2 years
and 1 month as of  December  31,  1998 as compared to 1 year and 8 months at the
end of 1997. The weighted average maturity has remained short in order to assure
liquidity  and to take  advantage  of the  changing  rate  environment.  Table 4
(located on page 20) shows the remaining maturity or earliest possible repricing
for investment securities.

                           NON-INTEREST EARNING ASSETS

Non-interest  earning  assets  (not  including  unrealized  gains on  investment
securities)  decreased  $56,000,  or 0.1% on  average in 1998 as  compared  to a
decrease of $2,596,000,  or 4.9% in 1997.  Changes  occurring in both years were
the result of normal operating activities.

A strategy was  designed to  systematically  replace  aging  computer  equipment
throughout the  organization,  as well as to increase  branch office  automation
through computer access in 1997. This goal was achieved during 1997,  accounting
for most of the capital spending.  Additionally,  further commitment was made to
technological  advances through updated and new computer software and equipment.
These  upgrades  began in 1998 and will be on-going  expenditures  over the next
several years.

                                    DEPOSITS

The banking industry in general  continues to experience  limited deposit growth
because of fierce  competition in the  marketplace  provided by mutual funds and
other  investment  options that directly compete with traditional bank products.
During the past 5 years, Omega has experienced slow deposit growth. As reflected
in Table 3, average total  deposits  declined in 1998 and 1997 by $6,300,000 and
$7,900,000,  respectively.  While in 1997,  all  types of  deposits  experienced
decreases,  in 1998, time deposits was the only category to decline with a total
reduction on average of $20,900,000,  or 5%. Transaction accounts,  particularly
demand deposit accounts, increased by $14,600,000, or 3.4%.

Deposit levels have been  influenced over the last three years by customers' use
of  cash  management  accounts  that  sweep  overnight  monies  into  repurchase
agreements.  This  has  caused  the  flow  of core  account  funds  into  retail
repurchase agreements (see Other Interest Bearing Liabilities). In 1998, average
deposits were reduced by $6,100,000 as a result of the repurchase agreements, as
compared to $8,100,000 in 1997.

                           Average Deposit Mix Change

                                    Average          Average
                                 Core Deposits     Time Deposits
                                 -------------     -------------
                  1993               54.7%             45.3%
                  1994               56.9%             43.1%
                  1995               53.3%             46.7%
                  1996               51.2%             48.8%
                  1997               50.9%             49.1%
                  1998               53.0%             47.0%


--------------------------------------------------------------------------------
14
<PAGE>

                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                             OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS
                            -------------------------

                                     TABLE 3
                               Changes in Deposits
                                ($ in thousands)

<TABLE>
<CAPTION>
                                                          1998      Increase(Decrease)      1997      Increase(Decrease)      1996
                                                         Average    ------------------     Average    ------------------     Average
                                                         Balance     Amount         %      Balance     Amount         %      Balance
                                                        --------    --------      ----    --------    --------      ----    --------
<S>                                                     <C>         <C>           <C>     <C>         <C>           <C>     <C>     
Interest bearing demand deposits ...................    $229,484    $ 10,180       4.6%   $219,304    $ (2,600)     (1.2)%  $221,904
Savings deposits ...................................     102,636         515       0.5     102,121      (2,136)     (2.0)    104,257
Demand deposits ....................................     114,382       3,862       3.5     110,520      (2,526)     (2.2)    113,046
                                                        --------    --------      ----    --------    --------      ----    --------
    Total core(transaction) accounts ...............     446,502      14,557       3.4     431,945      (7,262)     (1.7)    439,207
Time deposits ......................................     396,457     (20,939)     (5.0)    417,396        (610)     (0.1)    418,006
                                                        --------    --------      ----    --------    --------      ----    --------
    Total deposits .................................    $842,959    $ (6,382)     (0.8)%  $849,341    $ (7,872)     (0.9)%  $857,213
                                                        ========    ========      ====    ========    ========      ====    ========
</TABLE>


                       OTHER INTEREST BEARING LIABILITIES

Other interest bearing liabilities on average increased $6,344,000,  or 46.1% in
1998, as compared to an increase of $5,031,000,  or 57.6% in 1997. The increases
in  1998  and  1997  are  due to the  addition  of  $6,088,000  and  $8,147,000,
respectively,  in the average balances of retail repurchase agreements (see Note
8 of Notes to Consolidated Financial Statements).

                              SHAREHOLDERS' EQUITY

Shareholders'  equity  continued to be an important  funding source during 1998,
providing an average balance of $150,577,000, an increase of $12,217,000 or 8.8%
from the $138,360,000  provided in 1997. In spite of increased dividends,  Omega
continued a strong rate of internal  capital  generation.  This rate was 6.7% in
1998 and 7.9% in 1997.  This  internal  capital  generation is dependent on high
earnings  performance  which is reflected by a return on average assets of 1.66%
in 1998 and 1.67% in 1997, in conjunction with a prudent dividend policy that is
represented by payout ratios on the common stock of 41.9% for 1998 and 34.4% for
1997.  Capital has also been  increased as a result of employee stock option and
purchase plans. Other comprehensive income arising from unrealized gains (net of
tax) on securities available for sale increased average equity by $2,440,000 and
$1,163,000  in 1998 and 1997,  respectively.  At December 31,  1998,  Omega held
177,073 shares of stock in treasury at a cost of $6,038,000.

Omega  increased the value to  shareholders  by issuing a 3 for 2 stock split in
the form of a dividend in the second  quarter of 1997.  Omega also increased the
return to  shareholders  in 1998 by  increasing  its dividend  23.1% to $.80 per
common share.  Cash dividends per common share in prior years were $.65 and $.56
in 1997 and 1996,  respectively.  Omega paid a dividend  of $1.80 per  preferred
share in each of the years ending 1998,  1997 and 1996.  See Note 18 of Notes to
Consolidated  Financial  Statements  regarding  restrictions  on dividends  from
subsidiary banks to the holding company.

                              Equity to Asset Ratio
                                   at Year End
                                   -----------

                      1994                         12.03%
                      1995                         12.48%
                      1996                         13.49%
                      1997                         14.02%
                      1998                         14.49%

                           Common Book Value per Share
                           ---------------------------

                      1994                         $12.54
                      1995                         $13.67
                      1996                         $14.83
                      1997                         $15.83
                      1998                         $16.95

Federal banking  regulators have established  capital adequacy  requirements for
banks based on risk factors.  All banks and bank holding  companies are required
to have a minimum of 4% of risk adjusted assets in Tier I capital and 8% of risk
adjusted  assets in total capital  (Tier I and Tier II capital).  As of December
31,  1998  and  1997,  Omega's  Tier  I  capital  ratio  was  20.8%  and  19.9%,
respectively,  and its total  capital  ratio was 22.1% and 21.1%,  respectively.
Additionally,  banking  organizations  must maintain a minimum Tier I capital to
total asset  (leverage) ratio of 3%. This 3% leverage ratio is a minimum for the
top-rated   banking   organizations   without  any  supervisory,   financial  or
operational weaknesses or deficiencies. Other banking organizations are required
to maintain  leverage  capital  ratios 100 to 200 basis points above the minimum
depending on their financial  condition.  At December 31, 1998 and 1997, Omega's
leverage ratio was 14.5% and 13.3%,  respectively,  against a required  leverage
ratio of 4% (see Note 20 of Notes to the Consolidated Financial Statements).


--------------------------------------------------------------------------------
                                                                              15
<PAGE>


                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                             OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS
                            -------------------------

                           ASSET/LIABILITY MANAGEMENT

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

                   NET INTEREST INCOME AND INTEREST RATE RISK

Omega  believes  that it has managed  interest  rate risk in  achieving  optimal
levels of net interest  income.  Interest  rate risk is the risk to net interest
income or capital arising from movement of interest  rates.  Sources of interest
rate risk include;  repricing risk, basis risk and yield curve risk.  Management
utilizes two  methodologies  to aid in the management of interest rate risk: gap
analysis and economic simulation.

                                  GAP ANALYSIS

Gap is defined as the volume  difference  between interest rate sensitive assets
and  liabilities.  Gap is one  of the  tools  used  to  manage  repricing  risk.
Repricing  risk results from  differences in the timing of rate changes and cash
flows that occur in the  pricing  and  maturity  of assets and  liabilities.  By
managing gap,  fluctuations  in net interest  income can be  minimized,  thereby
achieving  consistent  growth in net interest  income during periods of changing
interest  rates.  Table 4 (located  on page 20) shows the period and  cumulative
static gaps for various time intervals as of December 31, 1998. The data in this
table is based upon the earliest possible repricing dates or maturity, whichever
comes first. Core deposit accounts, defined as interest bearing demand deposits,
certain savings accounts and checking accounts with interest,  are considered to
have  repricing  implications  of various  intervals  between one month and five
years.  The gap  analysis  is used as an  indicator  of what may  happen  to net
interest  income if interest rates rise or fall. On a cumulative  basis over the
next  twelve  months,  Omega is in a negative  gap  position of  $55,687,000  at
December 31, 1998,  indicating more interest  bearing  liabilities  than earning
assets will reprice during that period. Over the past year, the level of our gap
and interest rate risk positions have been affected by both the extension of our
loan portfolio,  which reflects our customers preference for fixed rates and the
shortening of our  certificate  of deposit base as customers  continue to prefer
shorter term certificates.

                               ECONOMIC SIMULATION

Economic  simulation  is another tool used by  management  to measure and manage
interest rate risk, including repricing,  basis and yield curve risk. Management
simulates  possible economic  conditions and interest rate scenarios in order to
quantify the impact on net interest  income.  The effect that changing  interest
rates has on Omega's net interest  income is simulated by moving  interest rates
up and down at 100 basis  point  increments.  This  simulation  is known as rate
shocks.  For example,  at December 31, 1998,  should  interest rates rise by 100
basis points  immediately and Omega's  balances do not grow and the mix does not
change,  net  interest  income  would  increase  over the next twelve  months by
$523,000.  If interest rates would decline by 100 basis points immediately,  net
interest  income would  decrease by $515,000  over the next twelve  months.  The
table  below  summarizes  the  results of the rate  shocks for the twelve  month
period following December 31, 1998 (in thousands).

                       -----------------------------------
                          Change in             Change in
                       Interest Rates         Net Interest
                        (Basis Points)           Income
                       -----------------------------------
                            400                  $2,022
                            300                   1,580
                            200                   1,058
                            100                     523
                              0                       0
                           (100)                   (515)
                           (200)                 (1,016)
                           (300)                 (1,494)
                           (400)                 (1,924)
                       -----------------------------------


--------------------------------------------------------------------------------
16
<PAGE>

                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                             OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS
                            -------------------------

Omega's  management  cannot predict the direction of interest rates nor will the
mix remain  unchanged,  yet,  management uses this information to help formulate
strategies to minimize any unfavorable effect on net interest income as a result
of interest rate changes. As an example, since 1990, Omega has executed a number
of interest rate contracts,  including  interest rate swaps and floors (notional
balance of  $30,000,000  as of December  31,  1998,  see Note 13 of Notes to the
Consolidated Financial Statements) in order to hedge certain prime interest rate
loans against declining rates. As part of these agreements, Omega is receiving a
fixed rate on the notional  balance with a weighted average maturity of 2 months
at a  weighted  rate of 8.36% and is paying the U.S.  prime  rate.  Since  Omega
entered into these  agreements in 1996,  the prime rate has decreased from 8.25%
to the current  rate of 7.75%.  The interest  rate swaps have  allowed  Omega to
maintain a steady margin on $30,000,000 of  prime-related  loans over the past 3
years, despite changes in the prime rate.

As the rate shocks  indicate,  the Corporation is exposed to a loss of income if
interest rates fall. Net interest  income at risk for a 100 basis point decrease
in rates as of December 31, 1998 was $515,000, or 1.12%, of net interest income,
compared to  $568,000,  or 1.23%,  as of December  31,  1997.  Omega's rate risk
policies  provide for maximum limits on net interest income which can be at risk
for 100 through 400 basis point changes in interest rates.  During 1998, Omega's
rate risk position was consistently within policy limits.

Omega's low level of interest rate risk is directly related to the preference of
our  customers  for fixed rate loans and  shorter  term  deposits.  If  customer
preferences  change,  the same  effects  could be obtained in the cash market by
investing  funds for a longer term;  however,  this would reduce  liquidity  and
require more capital.

In addition  to  determining  the impact on net  interest  income  from  various
interest rate changes, the same analysis is applied to determine the change that
interest rate movements would have on Omega's market value of equity (MVE).  The
MVE provides an indicator of economic value and is computed by  discounting  all
contractual  future cash flows at current market rates. The effect that changing
interest rates have on Omega's MVE is simulated by moving  interest rates up and
down at 100 basis point  increments.  This provides  management with information
necessary  to  analyze  long-term  interest  rate  risk.  Management  can  limit
long-term  interest rate risk,  but it is generally at the expense of short-term
earnings  which can cause more  volatility  in the short term.  At December  31,
1998, Omega's net interest income and MVE were within the guidelines established
by management.

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

                   Change in            Change in               Change in
  Basis          Interest Rates    Net Interest Income    Market Value of Equity
  -----          --------------    -------------------    ----------------------
Prime Risk           -100                $(1,299)               $  7,315
Treasury Risk        +100                $(1,255)               $ 11,229

The table above indicates the results of a 100 basis point decrease in the prime
rate  with  all  other  interest  rates   unchanged.   In  this  scenario,   the
Corporation's  net interest income would decrease by $1,299,000 and market value
of equity would increase by $7,315,000.  These results support the Corporation's
actions  in using  interest  rate swaps and  floors to hedge its  exposure  to a
decline in net interest  income when the  interest  rates on  prime-based  loans
decrease.  The  treasury  risk  noted  above  shows that if the  treasury  curve
increased  100  basis  points  with  no  other   interest   rate  changes,   the
Corporation's net interest income would decrease  $1,255,000 and market value of
equity would  increase  $11,229,000.  In both the prime risk and  treasury  risk
results,  only the direction of change in which interest  rates would  adversely
affect  earnings  is shown.  If  interest  rates were to change in the  opposite
direction from that indicated,  Omega would experience a similar increase in net
interest income.

Interest  rate risk can also result  from yield curve risk.  Yield curve risk is
the  exposure of  earnings  due to the  pricing of assets or  liabilities  being
influenced by the shape of the yield curve. The Corporation analyzed the effects
of yield curve risk on both net interest  income and MVE. The analysis  included
the affects of an inverted yield curve, where the thirty year rate was 500 basis
points under the one month rate.  Results indicate that this type of yield curve
would decrease the Corporation's  net interest income by $5,693,000,  or 12.38%,
and market value of equity would increase by $56,712,000, or 28.88%.


--------------------------------------------------------------------------------
                                                                              17
<PAGE>

                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                             OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS
                            -------------------------

The gap analysis,  rate shock simulation and basis risk analysis described above
are  performed in a static  environment.  In reality,  Omega's  balance sheet is
dynamic and in constant  change as are interest  rates.  Management  applies the
same techniques to projected  future volumes and various interest rate scenarios
prior to making any hedging  decision or decisions that involve the  acquisition
or investment of funds.

                                    LIQUIDITY

There is no standardized  formula for measuring  liquidity.  Past methods do not
apply due to the  complexity of today's  balance sheet.  Omega's  management has
adopted a liquidity measurement that answers the following three questions:

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

2.   If adverse  publicity was released  about the industry or the  Corporation,
     what is the ability of Omega to meet depositor needs? This would be the run
     on the bank or worst case scenario.

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

First,  total liquid assets are determined.  This includes cash on hand, federal
funds sold,  market value of U.S.  Treasury and Agency  securities  not pledged,
loans that could be sold within thirty days, cash from maturities  within thirty
days and any other readily marketable asset.

Second, total short-term liabilities are determined. This includes federal funds
purchased,   repurchase  agreements,   certificates  of  deposit  over  $100,000
scheduled to mature  within thirty days,  and an estimated  amount of the retail
deposits.

                          Average Loan to Deposit Ratio
                          -----------------------------

                        1994                         77.9%
                        1995                         82.2%
                        1996                         82.2%
                        1997                         81.6%
                        1998                         83.5%

The  short-term  liabilities  are deducted from the liquid assets to determine a
surplus or deficit and a percentage of total assets is  determined.  At December
31, 1998, total liquid assets were $153,963,000 while the short-term liabilities
were $56,422,000.  This left a surplus of liquid assets of $97,541,000,  or 9.2%
of total assets. Management believes that a surplus of not less than 5% to 7% is
adequate.

Another  measure of liquidity is the average loan to deposit  ratio.  This ratio
was 83.5% at  December  31, 1998 and 81.6% at December  31,  1997.  Management's
target range for this ratio is 70% to 85%.

If required due to unforeseen  circumstances,  Omega has the ability to increase
its liquidity through the sale of assets,  primarily financial  instruments.  As
disclosed in Note 2 of Notes to the Consolidated  Financial Statements,  most of
Omega's  financial  assets have a fair value in excess of their  aggregate  book
value, therefore some of these instruments could be sold if needed for liquidity
purposes,  and their sale  would not  negatively  affect  current  earnings  and
capital.

As to  off-balance  sheet  liquidity,  Omega has federal  funds  lines  totaling
$18,000,000  at December  31, 1998.  At December  31, 1998,  Omega had no amount
outstanding against these federal funds lines.  Omega's banks are members of the
Federal Home Loan Bank of Pittsburgh which provides overnight or term funding to
the banks of  $62,572,000.  This borrowing limit could be increased to a maximum
amount of  $282,733,000  with the purchase of additional FHLB stock. At December
31,  1998,  Omega  had  $5,000,000  outstanding  against  the  term  line and no
overnight  advances  (See  Note  8  of  Notes  to  the  Consolidated   Financial
Statements). Another source of liquidity is the Federal Reserve Discount Window.
Omega is able to borrow  up to the  amount of  collateral  pledged,  which as of
December 31, 1998 was $11,737,000.


--------------------------------------------------------------------------------
18
<PAGE>

                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                             OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS
                            -------------------------


                               MARKET ENVIRONMENT

Omega's  market is  generally  in  central  Pennsylvania  and  primarily  in the
counties of Centre, Clinton,  Mifflin, Blair,  Huntingdon,  Bedford, Juniata and
Montour.

                            Net Income (in thousands)
                            -------------------------

                        1994                    $12,785
                        1995                    $14,069
                        1996                    $16,227
                        1997                    $16,968
                        1998                    $17,092


--------------------------------------------------------------------------------
                                                                              19
<PAGE>

                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                             OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS
                            -------------------------


                                     TABLE 4
                              MATURITY DISTRIBUTION
                             AS OF DECEMBER 31, 1998
                                 (In thousands)
                Remaining Maturity / Earliest Possible Repricing
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
                                                                Over Three     Over Six       Over One
                                                  Three         Months But     Months But     Year But        Over
                                                  Months        Within Six     Within One    Within Five      Five
                                                  or Less         Months          Year          Years         Years          Total
                                                 ---------      ---------      ---------      ---------     ---------     ---------
<S>                                              <C>            <C>            <C>            <C>           <C>           <C>      
Interest Earning Assets
     Interest bearing deposits .............     $   1,455      $      --      $      --      $      --     $      --     $   1,455
     Federal funds sold ....................        18,350             --             --             --            --        18,350
     Investment securities:
          U.S. Treasury securities:
               and obligations of other
               U.S. Government agencies
               and corporations ............           999          2,003         32,055         49,640            --        84,697
          Corporate and other securities ...           789            590          3,417         64,426         9,094        78,316
          Obligations of state and political
               subdivisions ................         4,022          2,912          9,165         35,961           991        53,051
          Mortgage backed securities .......         6,008          6,069         11,480          3,997            --        27,554
          Stocks ...........................            --             --             --             --        10,522        10,522
     Loans:
          Commercial, financial, and
               agricultural ................        55,521          4,328         10,232         17,702        10,118        97,901
          Real estate - commercial .........        61,511         13,373         11,339         53,503        59,261       198,987
          Real estate - construction .......         5,362            122            364          2,149         7,893        15,890
          Real estate - mortgage ...........        12,614         12,116         22,001         84,094        97,021       227,846
          Home equity ......................        16,811          3,174          6,264         38,259        19,292        83,800
          Personal (net of
               unearned interest) ..........        26,076          6,214         11,562         41,725         9,410        94,987
          Lease financing (net of
               unearned interest) ..........           214            217            578          2,539             8         3,556
                                                 ---------      ---------      ---------      ---------     ---------     ---------
Total Interest Earning Assets ..............       209,732         51,118        118,457        393,995       223,610       996,912
                                                 ---------      ---------      ---------      ---------     ---------     ---------
Interest Bearing Liabilities
     Demand deposits .......................        28,226             --             --        159,944            --       188,170
     Savings deposits ......................        93,410             --         21,375         40,925            --       155,710
     Certificates of deposit
               over $100,000 ...............        14,572         10,152          6,465         16,835           273        48,297
     Time deposits .........................       110,518         60,065         66,988        108,521           100       346,192
     Short-term borrowings .................        17,638             --             --             --            --        17,638
     Long-term debt ........................         5,000             --             --             --            --         5,000
     Other interest bearing liabilities ....           585             --             --             --         3,837         4,422
                                                 ---------      ---------      ---------      ---------     ---------     ---------
Total Interest Bearing Liabilities .........       269,949         70,217         94,828        326,225         4,210       765,429
                                                 ---------      ---------      ---------      ---------     ---------     ---------
Gap ........................................     $ (60,217)     $ (19,099)     $  23,629      $  67,770     $ 219,400     $ 231,483
                                                 =========      =========      =========      =========     =========     =========
Cumulative Gap .............................     $ (60,217)     $ (79,316)     $ (55,687)     $  12,083     $ 231,483
                                                 =========      =========      =========      =========     =========
Cumulative sensitivity ratio ...............          0.78           0.77           0.87           1.02          1.30

Commercial, financial and agricultural 
     loans maturing after one year with:
     Fixed interest rates ..................                                                  $   7,331      $   8,278     $  15,609
     Variable interest rates ...............                                                     15,404         16,135        31,539
                                                                                              ---------     ---------      ---------
     Total .................................                                                  $  22,735      $  24,413     $  47,148
                                                                                              =========      =========     =========
</TABLE>


--------------------------------------------------------------------------------
20

<PAGE>

                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                             OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS
                            -------------------------


                              RESULTS OF OPERATIONS
                                    OVERVIEW

1998

Omega reported  earnings in 1998 of $17,092,000,  an increase of 0.7% over 1997.
On a diluted  basis,  net income per common share  improved,  reaching  $1.79 in
1998, an increase of 1.1%, or $.02, over 1997. Several occurrences took place in
1998 which  management  believes  significantly  affected  the year's  financial
performance. They are as follows:

o    solid net interest margin

o    increased  fee income on  traditional  banking  services and new products

o    increase from gains on securities

o    write off of intangibles from a prior acquisition

                            Return on Average Assets
                            ------------------------

                           1994                 1.36%
                           1995                 1.47%
                           1996                 1.61%
                           1997                 1.67%
                           1998                 1.66%

Assets were $1,062,704,000 at December 31, 1998, representing a $46,801,000,  or
4.6%,  increase  over  year-end  1997.  Loans (net of  unearned  discount)  were
$722,967,000 compared to $691,893,000 at December 31, 1997, an increase of 4.5%,
or $31,074,000.  Deposits increased by $29,885,000, or 3.6%, at December 31,1998
when compared to December 31, 1997.

Return on average equity  decreased from 12.26% to 11.35% in 1998,  while return
on average assets decreased to 1.66% from 1.67% in 1997. Omega's performance can
be compared to its national peers with  consolidated  assets of $1 billion to $3
billion (using the most current data for September 30, 1998).

                                               Omega           Peers
                                               -----           -----
         Return on average assets ..........    1.66%           1.26%
         Return on average equity ..........   11.37           13.97


1997

Omega reported  earnings in 1997 of $16,968,000,  an increase of 4.6% over 1996.
On a diluted basis,  net income per common share continued to improve,  reaching
$1.77 in 1997, an increase of 4.7%, or $.08,  over 1996.  The key factors which,
in  management's  opinion,  influenced  the  operating  results  in 1997  are as
follows:

o    increased net interest margin

o    increased fee income on traditional services

o    increase from gains on securities and loan sales

                            Return on Average Equity
                            ------------------------

                            1994                11.75%
                            1995                11.90%
                            1996                12.51%
                            1997                12.26%
                            1998                11.35%


Assets were $1,015,903,000 at December 31, 1997, representing an $8,558,000,  or
0.8%,  increase  over  year-end  1996.  Loans (net of  unearned  discount)  were
$691,893,000  compared to $696,597,000 at December 31, 1996, a decrease of 0.7%,
or $4,704,000.  Deposits decreased by $5,255,000, or 0.6%, from December 31,1996
to December 31, 1997.

Return on average equity  decreased from 12.51% in 1996 to 12.26% in 1997, while
return  on  average  assets  increased  to 1.67%  from  1.61%  in 1996.  Omega's
performance can be compared to its national peers with consolidated assets of $1
billion to $3 billion as of December 31, 1997.

                                               Omega           Peers
                                               -----           -----
         Return on average assets ..........    1.67%           1.28%
         Return on average equity ..........   12.26           14.17


--------------------------------------------------------------------------------
                                                                              21
<PAGE>

                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                             OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS
                            -------------------------


                               NET INTEREST INCOME

Net interest  income is the amount by which  interest  income on earning  assets
exceeds interest expense on interest bearing liabilities.  Because some interest
earning assets are tax exempt, an adjustment is made for analytical  purposes to
place all assets on a fully tax equivalent basis.

Table 5 (located on page 24) shows average asset and liability balances, average
interest  rates and  interest  income and expense for the period  1996-1998.  In
addition, it shows the changes attributable to the volume and rate components of
net interest income.

1998
----

Total average loans were  $704,019,000  in 1998 at an average  weighted yield of
8.56%  that  produced   $60,266,000  in  interest  income.  This  represented  a
$10,888,000, or 1.6%, increase in average volumes from 1997. The yield decreased
34 basis points from 8.90% in 1997 causing a decrease of  $2,147,000 in interest
income, partially offsetting an increase of $730,000 of favorable mix and volume
changes for a net decrease of  $1,417,000,  or 2.3%,  when compared to 1997. The
yield  decrease of 34 basis points from 8.90% to 8.56% was partially a result of
approximately  $43,000,000  of variable  rate loans tied to prime  converting to
fixed rate, priced off the Treasury curve. Additionally,  most new loans in 1998
were fixed rate loans.

Investment  securities  averaged  $246,618,000  for a decrease of  $51,000.  The
average  weighted yield  decreased to 5.71% from 5.77% in 1997.  Interest income
from securities decreased a total of $170,000, with $252,000 attributable to the
replacement  of  approximately   $15,000,000  of  maturing  taxable   investment
securities  with tax exempt  investment  securities that carry a lower rate, but
higher tax equivalent yield.  Interest bearing deposits increased  $156,000,  or
25.8%, and federal funds sold decreased  13.9%, or $2,617,000.  The net increase
in average volumes of $2,512,000 on the above three assets was a result of funds
supplied by deposits.

Total interest  earning  assets  averaged  $967,654,000  at a yield of 7.78% and
produced  total  interest  income of  $75,268,000  for 1998. The net increase in
average  earning assets of $8,376,000 in 1998 over 1997 was funded  primarily by
borrowings.  The yield  decreased  25 basis  points from 8.03% due mainly to the
lower yielding fixed rate and tax-free loans. The mix of earning assets remained
stable in 1998,  with 68.6% of all earning assets made up of loans,  as compared
to 68.3% in 1997 (see  Average  Asset  Mix  Change  chart on page 11).  Interest
income increased  $342,000 from volume and mix changes and decreased  $2,072,000
from generally lower yields producing a net decrease of 2.2%, or $1,730,000.  On
a fully tax equivalent basis, interest income decreased by only $1,269,000.

Total  interest  bearing  liabilities   averaged   $748,679,000  at  a  cost  of
$28,650,000  for a  composite  rate of 3.83%.  This  represented  a decrease  in
interest  bearing  liabilities of 0.5%, or $3,900,000,  over 1997. The composite
rate  decreased  from  3.97%  in  1997,  or 14 basis  points.  Interest  expense
decreased  $552,000  due to lower  rates  and  $675,000  due to  volume  and mix
changes.  These changes  resulted in a net decrease of  $1,227,000,  or 4.1%, in
interest expense.

Non-interest bearing funding sources, including equity, averaged $278,000,000 in
1998, compared to $262,028,000 in 1997, for an increase of $15,972,000, or 6.1%.
This  resulted  in a decrease  of 16 basis  points in the rate to fund  interest
earning  assets  (computed by dividing the total  interest  expense by the total
average earning assets) from 3.12% in 1997 to 2.96% in 1998.

Net interest income was  $46,618,000 for 1998, a decrease of $503,000,  or 1.1%,
from 1997. This was the result of an increase of $1,017,000 in favorable  volume
and mix  changes  and a decrease  of  $1,520,000  as a result of  interest  rate
effects.  Net  yield  was  4.82% in 1998  and  4.91%  in  1997.  On a fully  tax
equivalent basis, the net yield decreased from 5.08% to 5.03% in 1998.

Following is a schedule  comparing Omega's margin  performance to the average of
its national peers as of September 30, 1998:


               Percent of average earning assets            Omega     Peers
               ---------------------------------            -----     -----
               Interest income - tax equivalent ..........  7.94%     8.40%
               Interest expense ..........................  2.96      3.94
               Net interest income - tax equivalent ......  4.98      4.46


--------------------------------------------------------------------------------
22

<PAGE>

                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                             OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS
                            -------------------------

1997
----

Total average loans were  $693,131,000 in 1997 at a yield of 8.90% that produced
$61,683,000  in  interest  income.  This  represented  an  $11,128,000,  or 1.6%
decrease in average  volumes from 1996.  The yield  decreased 1 basis point from
8.91% in 1996 to  8.90% in 1997.  As a  result  of the  decreased  average  loan
volumes,  interest  income was reduced by  $1,034,000.  The lower  average yield
further reduced interest income by $23,000.  The volume decrease was caused by a
number of  factors,  including  a general  tightening  of credit  standards  and
increased  competition  for indirect  auto loans,  as  discussed  earlier in the
Financial Condition section.  The 1997 average balance of investment  securities
was  $246,649,000,  an increase  over 1996 of  $19,567,000,  or 8.6% compared to
1996. The yield  increased to 5.77% in 1997 from 5.64% in 1996.  Interest income
from securities increased a total of $1,440,000, with $1,121,000 attributable to
higher  volumes,  and $319,000 due to higher yields.  Average  interest  bearing
deposits decreased $52,000,  or 7.9%, and federal funds sold decreased 12.2%, or
$2,619,000.  The net  increase in average  volumes of  $16,896,000  on the above
three types of assets was a result of reduced  loan  funding  needs and improved
employment of excess cash.

Total interest  earning  assets  averaged  $959,278,000  at a yield of 8.03% and
produced total interest  income of $76,998,000  for 1997.  Compared to 1996, the
average  volumes  increased  $5,768,000,  or 0.6%.  The yield  decreased 2 basis
points  from  8.05% in 1996 as  compared  to 8.03% in 1997 as the mix of earning
assets  shifted  from 69.8%  loans in 1996 to 68.3%  loans in 1997 (See  Average
Asset Mix Change  chart on page 11).  Interest  income  decreased  $60,000  from
volume and mix changes and increased $338,000 from rate differences  producing a
net increase of 0.4%, or $278,000.

Total interest  bearing  liabilities in 1997 averaged  $752,579,000 at a cost of
$29,877,000  for a  composite  rate of 3.97%.  This  represented  a decrease  in
interest  bearing  liabilities  of  $315,000,  over  1996.  The  composite  rate
decreased  from  4.03% in 1996,  or 6 basis  points.  In 1997  interest  expense
decreased  $555,000 due to lower rates and  increased  $112,000 due to favorable
volume and mix  changes  compared  to 1996.  These  changes  resulted in a total
decrease of $443,000, or 1.5%, in interest expense.

Non-interest bearing funding sources, including equity, averaged $262,028,000 in
1997, compared to $256,749,000 in 1996, for an increase of $5,279,000,  or 2.1%.
This  resulted  in a  decrease  of 6 basis  points in the rate to fund  interest
earning  assets  (computed by dividing the total  interest  expense by the total
average earning assets) from 3.18% in 1996 to 3.12% in 1997.

Net interest income was $47,121,000 for 1997, an increase of $721,000,  or 1.6%,
from  1996.  This was the  result of a decrease  of  $172,000  in volume and mix
changes and an increase of $893,000 as a result of interest  rate  effects.  Net
yield  increased  4 basis  points to 4.91%  from  4.87% in 1996.  On a fully tax
equivalent basis, the net yield increased from 5.03% to 5.08% in 1997.

Following is a schedule  comparing Omega's margin  performance to the average of
its national peers as of December 31, 1997:


            Percent of average earning assets             Omega      Peers
            ---------------------------------             -----      -----
            Interest income - tax equivalent ...........  8.19%      8.44%
            Interest expense ...........................  3.11       3.92
            Net interest income - tax equivalent .......  5.08       4.52



--------------------------------------------------------------------------------
                                                                              23
<PAGE>

                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                             OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS
                            -------------------------


                                     TABLE 5
             AVERAGE BALANCE SHEETS AND NET INTEREST INCOME ANALYSIS

<TABLE>
<CAPTION>
                                                       (In thousands)                               Years Ended December 31,
====================================================================================================================================
                                                                             1998                                1997
                                                            -----------------------------------   --------------------------------- 
                                                              Average                     Yield/    Average                   Yield/
                                                            Balance (1)     Interest       Rate   Balance (1)   Interest       Rate
                                                            ----------     ----------      ----   ----------    ---------      ---- 
<S>                                                         <C>            <C>             <C>    <C>           <C>            <C>  
ASSETS
Interest earning assets:
  Loans (5),(7) .........................................   $  676,664     $   58,711      8.68%  $  674,112    $  60,380      8.96%
  Tax-exempt loans ......................................       27,355          1,555      5.68       19,019        1,303      6.85
                                                            ----------     ----------      ----   ----------    ---------      ---- 
    Total loans .........................................      704,019         60,266      8.56      693,131       61,683      8.90

  Investment securities .................................      194,141         11,769      6.06      208,943       12,542      6.00
  Tax-exempt investment securities ......................       52,477          2,302      4.39       37,726        1,699      4.50
                                                            ----------     ----------      ----   ----------    ---------      ---- 
    Total investment securities .........................      246,618         14,071      5.71      246,669       14,241      5.77

  Interest bearing deposits .............................          761             39      5.12          605           34      5.62
  Federal funds sold ....................................       16,256            892      5.49       18,873        1,040      5.51
                                                            ----------     ----------      ----   ----------    ---------      ---- 
Total interest earning assets ...........................      967,654         75,268      7.78      959,278       76,998      8.03

Non-interest earning assets:                                                          
  Cash and due from banks ...............................       32,404                                29,972 
  Allowance for loan losses .............................      (11,924)                              (11,755)
  Premises and equipment ................................       17,240                                17,917 
  Other assets (8) ......................................       21,305                                19,195 
                                                            ----------                            ----------
    Total ...............................................   $1,026,679                            $1,014,607 

LIABILITIES AND SHAREHOLDERS' EQUITY                                                  
Interest bearing liabilities:                                                         
  Interest bearing demand deposits (2) ..................   $  229,484          4,044      1.76   $  219,304        4,109      1.87
  Savings deposits ......................................      102,636          2,309      2.25      102,121        2,309      2.26
  Time deposits .........................................      396,457         21,394      5.40      417,396       22,804      5.46
  Other, including short-term borrowings, long-term debt                                             
    and other interest bearing liabilities ..............       20,102            903      4.49       13,758          655      4.76
                                                            ----------     ----------      ----   ----------    ---------      ---- 
Total interest bearing liabilities ......................      748,679         28,650      3.83      752,579       29,877      3.97
                                                                           ----------                           ---------
Non-interest bearing liabilities:                                                                    
  Demand deposits .......................................      114,382                               110,520                
  Other .................................................       13,041                                13,148                
Shareholders' equity ....................................      150,577                               138,360                
                                                            ----------                            ----------                
    Total ...............................................   $1,026,679                            $1,014,607                
                                                            ==========                            ==========                

Net interest income .....................................                  $   46,618                          $   47,121
                                                                           ==========                          ==========
Net yield on interest earning assets (3) ................                                  4.82%                               4.91%
                                                                                           ====                                ==== 
Net interest income and yield -- tax equivalent basis (4)                  $   48,695      5.03%               $   48,737      5.08%
                                                                           ==========      ====                ==========      ==== 
                                                            ========================================================================
</TABLE>

1)   Average balances were calculated using a daily average.
2)   Includes NOW and money market accounts.
3)   Net yield on interest  earning  assets is net  interest  income  divided by
     average interest earning assets.
4)   Interest  on  obligations  of states and  municipalities  is not subject to
     federal  income tax. In order to make the net yield  comparable  on a fully
     taxable  basis,  a  tax  equivalent   adjustment  is  applied  against  the
     tax-exempt income utilizing a federal tax rate of 35%.
5)   Non-accruing  loans and  investments  are included in the above table until
     they are charged off.
6)   The change in interest due to rate and volume has been  allocated to volume
     and rate changes in proportion to the  relationship  of the absolute dollar
     amounts of the change in each.
7)   Interest on loans includes  income/(loss) of $(2,000) in 1998, $(13,000) in
     1997 and $72,000 in 1996 from interest rate  contracts  used to hedge prime
     interest rate loans.
8)   Includes  gross  unrealized   gains  on  securities   available  for  sale:
     $8,537,000 in 1998, $4,785,000 in 1997 and $2,993,000 in 1996.


--------------------------------------------------------------------------------
24

<PAGE>

                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                             OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS
                            -------------------------

                                     TABLE 5
             AVERAGE BALANCE SHEETS AND NET INTEREST INCOME ANALYSIS

                                 (In thousands)

<TABLE>
<CAPTION>
                                                           ==================================
                                                                             1996            
                                                           --------------------------------- 
                                                             Average        Yield/           
                                                           Balance (1)     Interest     Rate 
                                                           ----------     ---------     ---- 
<S>                                                        <C>            <C>           <C>  
ASSETS
Interest earning assets:
  Loans (5),(7) .........................................  $  686,541     $  61,504     8.96%
  Tax-exempt loans ......................................      17,718         1,236     6.98 
                                                           ----------     ---------     ---- 
    Total loans .........................................     704,259        62,740     8.91 

  Investment securities .................................     192,489        11,208     5.82 
  Tax-exempt investment securities ......................      34,613         1,593     4.60 
                                                           ----------     ---------     ---- 
    Total investment securities .........................     227,102        12,801     5.64 

  Interest bearing deposits .............................         657            35     5.33 
  Federal funds sold ....................................      21,492         1,144     5.32 
                                                           ----------     ---------     ---- 
Total interest earning assets ...........................     953,510        76,720     8.05 

Non-interest earning assets:
  Cash and due from banks ...............................      32,581
  Allowance for loan losses .............................     (11,795)
  Premises and equipment ................................      17,584
  Other assets (8) ......................................      17,763
                                                           ----------
    Total ...............................................  $1,009,643
                                                           ==========

LIABILITIES AND SHAREHOLDERS' EQUITY
Interest bearing liabilities:
  Interest bearing demand deposits (2) ..................  $  221,904         4,496     2.03 
  Savings deposits ......................................     104,257         2,407     2.31 
  Time deposits .........................................     418,006        22,960     5.49 
  Other, including short-term borrowings, long-term debt
    and other interest bearing liabilities ..............       8,727           457     5.24 
                                                           ----------     ---------     ---- 
Total interest bearing liabilities ......................     752,894        30,320     4.03 
                                                                          ---------          
Non-interest bearing liabilities:
  Demand deposits .......................................     113,046
  Other .................................................      14,011
Shareholders' equity ....................................     129,692
                                                           ----------
    Total ...............................................  $1,009,643
                                                           ==========

Net interest income .....................................                 $  46,400          
                                                                          =========          

Net yield on interest earning assets (3) ................                               4.87%
                                                                                        ==== 

Net interest income and yield -- tax equivalent basis (4)                 $  47,923     5.03%
                                                                          =========     ==== 
                                                           ==================================
</TABLE>


<TABLE>
<CAPTION>
                                                         ==========================================================================
                                                               1998 Compared to 1997                  1997 Compared to 1996
                                                           Increase (Decrease) Due To (6)         Increase (Decrease) Due To (6)
                                                         -----------------------------------    -----------------------------------
                                                           Volume        Rate        Total        Volume        Rate        Total
                                                         ---------    ---------    ---------    ---------    ---------    --------- 
<S>                                                      <C>          <C>          <C>          <C>          <C>          <C>       
ASSETS
Interest earning assets:
  Loans (5),(7) .......................................  $     228    $  (1,897)   $  (1,669)   $  (1,124)   $       0    $  (1,124)
  Tax-exempt loans ....................................        502         (250)         252           90          (23)          67
                                                         ---------    ---------    ---------    ---------    ---------    --------- 
    Total loans .......................................        730       (2,147)      (1,417)      (1,034)         (23)      (1,057)

  Investment securities ...............................       (897)         124         (773)         980          354        1,334
  Tax-exempt investment securities ....................        645          (42)         603          141          (35)         106
                                                         ---------    ---------    ---------    ---------    ---------    --------- 
    Total investment securities .......................       (252)          82         (170)       1,121          319        1,440

  Interest bearing deposits ...........................          8           (3)           5           (3)           2           (1)
  Federal funds sold ..................................       (144)          (4)        (148)        (144)          40         (104)
                                                         ---------    ---------    ---------    ---------    ---------    --------- 
Total interest earning assets .........................        342       (2,072)      (1,730)         (60)         338          278

Non-interest earning assets:
  Cash and due from banks ............................. 
  Allowance for loan losses ........................... 
  Premises and equipment .............................. 
  Other assets (8) .................................... 

    Total ............................................. 


LIABILITIES AND SHAREHOLDERS' EQUITY
Interest bearing liabilities:
  Interest bearing demand deposits (2) ................        184         (249)         (65)         (50)        (337)        (387)
  Savings deposits ....................................         11          (11)           0          (48)         (50)         (98)
  Time deposits .......................................     (1,157)        (253)      (1,410)         (33)        (123)        (156)
  Other, including short-term borrowings, long-term ...
    debt and other interest bearing liabilities .......        287          (39)         248          243          (45)         198
                                                         ---------    ---------    ---------    ---------    ---------    --------- 
Total interest bearing liabilities ....................       (675)        (552)      (1,227)         112         (555)        (443)
                                                         ---------    ---------    ---------    ---------    ---------    --------- 
Non-interest bearing liabilities:
  Demand deposits ..................................... 
  Other ............................................... 
Shareholders' equity .................................. 

    Total ............................................. 


Net interest income ...................................  $   1,017    $  (1,520)    $   (503)   $    (172)    $    893     $    721
                                                         =========    =========     ========    =========     ========     ========

Net yield on interest earning assets (3) .............. 


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


--------------------------------------------------------------------------------
                                                                              25
<PAGE>

                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                             OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS
                            -------------------------


                            PROVISION FOR LOAN LOSSES

Omega's  provision for loan losses was $1,060,000 in 1998 and $1,030,000 in 1997
for an increase of $30,000.  This increase was  precipitated  by the increase in
the amount of net charge-offs, which exceeded the loan loss provision by $21,000
in 1998 and by $27,000 in 1997.  Net  charge-offs  in 1998 and 1997 were .15% of
average loans outstanding.  Non-performing loans as a ratio to the allowance for
loan  losses  were  55.4% at  year-end  1998 and  58.6% at the end of 1997.  The
allowance  for loan  losses  as a ratio to net  loans  was  1.63%  and  1.70% at
December  31,  1998 and  1997,  respectively.  The ratio of net  charge-offs  to
average loans compared to Omega's national peers is as follows:

                                                    Omega      Peers
                                                    -----      -----
                   September 30, 1998 ...........   .11%        .26%
                   December 31, 1997 ............   .15         .29

Management  believes  that the allowance for loan losses at December 31, 1998 is
adequate based on its analysis of the loan  portfolio.  Such analysis  considers
factors  that  include   historical  and  anticipated   losses,  the  status  of
non-performing  delinquent loans, prevailing and anticipated economic conditions
and industry standards.


                               Net Interest Yield
                               ------------------

                             Yield on        Cost to Fund     Net Interest
                          Earning Assets    Earning Assets       Yield
                          --------------    --------------       -----
           1994                7.37%             2.68%           4.69%
           1995                8.08%             3.21%           4.87%
           1996                8.05%             3.18%           4.87%
           1997                8.03%             3.12%           4.91%
           1998                7.78%             2.96%           4.82%

--------------------------------------------------------------------------------
26

<PAGE>

                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                             OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS
                            -------------------------

                               NON-INTEREST INCOME

1998
----

Non-interest  income grew to $13,345,000  during 1998 for a 31.4%, or $3,189,000
increase when compared to $10,156,000  for 1997. Most categories of non-interest
income were improved in 1998 as compared to 1997. The  Corporation  continued to
place  emphasis  on  traditional  banking  services  and improve its overall fee
structure.  As a result,  fee income from  loans,  deposits  and other  services
increased by $750,000,  or 12.8%.  In the fourth quarter of 1998, net securities
gains of $2,630,000 were recorded,  causing net gains from investment securities
for the year to increase by  $2,344,000,  or 192.8%.  Net gains from the sale of
loans and other assets decreased by $61,000, or 19.1%.

As a percentage of average assets,  non-interest  income  (excluding  securities
gains) was .95% for 1998,  as  compared  to .88% in 1997.  When  compared to our
national  peers (most current data as of September 30, 1998),  Omega's ratio was
 .95% and the peer average was 1.19%.

1997
----

Non-interest  income grew to $10,156,000 during 1997 for a 12.6%, or $1,136,000,
increase  when  compared  to  $9,020,000  for  1996.  The  focus  in 1997 was on
increasing  revenues  generated  from  traditional  services,  by delivering new
products and expanded  services to our  customer  base,  such as debit cards and
asset management  services.  As a result,  trust fees increased by $236,000,  or
9.4%, while fees relating to deposit accounts grew $384,000,  or 13.3%, in 1997.
Net gains from  investment  transactions  of $1,218,000 in 1997  represented  an
increase of $429,000,  or 54.4%,  over 1996. Also,  during 1997, the credit card
portfolio was sold, resulting in a gain of $220,000.  Total other income in 1997
was $139,000 less than in 1996,  however,  in 1996 a one-time  $300,000 gain was
recorded from the disposition of an asset carried as other real estate.

                      Non-Interest Income to Average Assets
                           (excluding security gains)
                           --------------------------

                     1994                          0.75%
                     1995                          0.77%
                     1996                          0.82%
                     1997                          0.88%
                     1998*                         0.95%

As a percentage of average assets,  non-interest  income  (excluding  securities
gains) was .88% for 1997, as compared to .82% in 1996. The national peer average
for 1997 was 1.29%.


                              NON-INTEREST EXPENSE
1998
----

Omega's operating  expenses were $34,189,000 for 1998 as compared to $31,782,000
for 1997, representing an increase of $2,407,000, or 7.5%.

Salaries  and  employee  benefits  increased  by 3.7%,  or  $648,000  in 1998 as
compared  to 1997,  as a  result  of an  increase  of six  full-time  equivalent
employees on average and normal salary merit  increases.  Net occupancy  expense
has  been  stable  over the  last  three  years,  totaling  $2,177,000  in 1998.
Equipment expense increased by 9.3%, or $174,000 in 1998 as compared to 1997, as
technology advances continue. Data processing service fees were $76,000, or 4.9%
higher in 1998 than in 1997, as new services were added.

                     Non-Interest Expense to Average Assets
                     --------------------------------------

                      1994                          3.30%
                      1995                          3.28%
                      1996                          3.08%
                      1997                          3.13%
                      1998                          3.14%

*    1998 non-recurring item - 0.19%

During the fourth  quarter of 1998,  Omega  recorded a  non-recurring  charge to
non-interest  expense in the amount of  $1,944,000.  This  represents a complete
write-off of all remaining goodwill and core deposit  intangibles  relating to a
branch that was acquired in 1995.  The  original  premium was  $2,300,000,  with
amortization  scheduled  to  run  through  2010.  Management's  analysis  of the
projected operating results of this branch and its deteriorated deposit base led
to the determination  that the remaining premium could not be recovered from the
projected future cash flows  attributable to the branch. In addition,  given the
projected  deterioration  in the  deposit  levels  at  this  branch,  management
determined  that the fair  value  of the  branch  assets  did not  exceed  their
carrying value.  Therefore,  these  intangibles  were charged off in the current
year.  Other  operating  expense,  exclusive of the  non-recurring  item in 1998
decreased by $427,000, or 4.9% when compared to 1997.


--------------------------------------------------------------------------------
                                                                              27
<PAGE>

                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                             OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS
                            -------------------------

As a percentage of average  assets,  non-interest  expense was 3.33% for 1998 as
compared  to  3.13%  in  1997.   Excluding  the  non-recurring  charge  in  1998
(representing  .19% of average  assets),  this ratio is 3.14%.  At September 30,
1998,  Omega's  ratio of  non-interest  expense  to  average  assets  was 3.13%,
compared to a national peer average of 3.20%.

1997
----

Omega's operating  expenses were $31,782,000 for 1997 as compared to $31,087,000
for 1996,  representing an increase of $695,000, or 2.2%. In order to understand
the change,  it is important to review some unusual  events which  affected this
area in previous  years.  For example,  during  1996,  Omega's  defined  benefit
retirement  plan was terminated,  resulting in a one-time  reduction of employee
benefits  expense of  $391,000.  Therefore,  it was expected  that  salaries and
employee  benefits  expense in 1997 would increase by 2.4%,  just to replace the
normal required  benefits costs.  The additional  increase of 3.6%, or $590,000,
was a result of normal staffing  adjustments and merit  increases.  Another area
that requires a look back to previous  years is FDIC  insurance  premiums.  This
expense has been very erratic over the last several  years.  Prior to 1995,  the
base rate on  insurance  premiums  for  Omega's  banks was 23 cents per  hundred
dollars of deposits.  In April of 1995, the rate was reduced  significantly to 4
cents,  then further reduced in 1996 to the minimum of $2,000 per year per bank.
Then, in 1997, the rate was increased again,  causing an increase in expense for
FDIC premiums of $96,000,  or 1200%.  These fluctuations have been the result of
the FDIC  attempting to maintain the Bank Insurance  Fund at reasonable  levels.
While occupancy  expense and data processing  service costs remained  relatively
unchanged,  equipment expense rose by $83,000, or 4.6%, resulting primarily from
purchases  for  technology  advancement.  Other  expense  decreased  in  1997 by
$470,000,  or 5.1%, bringing this category to approximately the same level as in
1995.

At December 31, 1997,  Omega's ratio of  non-interest  expense to average assets
was 3.13%,  compared to a 3.08% in 1996.  The national peer average for 1997 was
3.26%.


                                  INCOME TAXES

Income taxes for 1998 amounted to $7,622,000 compared to $7,497,000 in 1997. The
effective tax rate was 30.8% in 1998. The non-recurring charge, specifically the
accelerated  amortization of non-deductible goodwill increased the effective tax
rate by 0.7%.  Excluding this preference item, the effective tax rate would have
been 30.1%, compared to 30.6% in 1997. This improvement was due to the change in
the mix of tax-exempt investments and loans. Omega's level of average tax-exempt
investments  and  average  tax-exempt  loans  increased  in  1998  by  40.7%  or
$23,087,000,  decreasing  the  federal  tax rate by 4.8%.  In 1997,  tax  exempt
earning  assets had  decreased  from the prior year by 8.4% or  $4,414,000,  and
reduced federal tax by only 3.8%. Average tax-exempt  investments and loans as a
percentage of average  assets were 7.8%,  5.6% and 5.2% in 1998,  1997 and 1996,
respectively.  Tax-exempt income as a percentage of income before income tax was
15.6%,  12.3% and 12.1% in 1998,  1997 and  1996,  respectively.  See Note 11 of
Notes to  Consolidated  Financial  Statements for further  information on income
taxes.


                                   NET INCOME

For  comparative  purposes,  the following table sets forth earnings and certain
earnings ratios for the past three years,  excluding the non-recurring charge to
earnings in 1998.

                                         1998           1997           1996
                                       -------        -------        -------
Net income ..........................  $18,531        $16,968        $16,227
Return on average assets ............     1.81%          1.67%          1.61%
Return on average equity ............    12.31          12.26          12.51



--------------------------------------------------------------------------------
28
<PAGE>

                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                             OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS
                            -------------------------

                              YEAR 2000 COMPLIANCE

The Year 2000 (Y2K) problem is a source of concern worldwide for businesses that
rely upon computer and software systems.  Many software programs record dates as
six digit fields,  eliminating  the first two digits of the year.  When the Year
2000 arrives,  it is possible  that these systems will  recognize it as the year
1900,  creating  failures in systems.  The effects could be far reaching.  It is
important for every Corporation to assess and address  potential  problems prior
to the event.  Management  is  currently  in the process of  evaluating  Omega's
readiness to address the Y2K problem.  An in-depth  analysis of the  Information
Technology  (IT)  infrastructure  as well as its  non-IT  systems  that  include
embedded technology is necessary to assess the extent of risk.

In 1997, a committee was formed to:
     1.   Identify all of the  date-dependent  systems at the  Corporation  that
          could be impacted by the Year 2000 issue.  In addition,  the committee
          was  charged  with  analyzing  the  impact  of the  Y2K  issue  on key
          customers and vendors
     2.   Test all  internal  information  systems and obtain  certification  of
          compliance from all external information service providers
     3.   Formulate  and execute a plan to minimize risk for customer and vendor
          Y2K failure
     4.   Determine  the  cost of and  plan  for  replacement  of  non-compliant
          systems
     5.   Formulate a contingency plan for unexpected failures.

The committee is comprised of executive  officers and operations  personnel from
all major  divisions  of the  Corporation.  The Y2K  evaluation  process has not
hindered progress on other planned IT projects.

The  committee  has  developed a plan to analyze the  readiness  of all internal
software.  A testing site was  developed  where PC software  could be loaded and
tested via  prescribed  test  scripts for  performance  as dates were  modified.
(Certain  key dates  have been  recommended  for  testing  by the  Corporation's
regulators).  As of December  31,  1998,  about 75% of the  critical PC software
applications had been tested with the remainder to be tested over the next three
months.

Major internal system  processing  software such as Items  Processing,  which is
critical to our business has been tested at the Corporation's  "Hot Site", where
backup  hardware and software are  maintained  for  continued  operations in any
crisis.  This software (and most related hardware) has been found to be reliable
when tested for all critical  dates.  As a result of testing thus far, one major
hardware item will be replaced in 1999.

All external  software service providers have been contacted and have been asked
to provide  certification and validation that their systems have been thoroughly
tested and are Y2K compliant.  If the provider is not currently Y2K compliant we
have  requested  a timetable  of planned  system  upgrades  to achieve  required
compliance. All critical vendors have indicated that they are dealing with their
Y2K  issues,  and in most  cases,  planned to have their  testing  completed  by
December 31, 1998.  Omega's  testing with all critical  outside  vendors will be
substantially completed by March 31, 1999.

Most of the  processing  of Omega's core  financial  services  are  out-sourced.
Omega's primary information service provider processes all application  systems,
as well as Omega's general ledger, and is the source of all data inquiry and the
data  warehouse  function.  This  service  is  absolutely  critical  to  Omega's
operation.  The  provider  has  completed  the  identification  phase of its Y2K
process and has completed testing of all but three software applications.  Proxy
testing with this provider's bank clients will continue to be conducted  through
the first quarter of 1999.  Since this provider is a large servicing  operation,
it has many other  financial  institutions  as clients.  These clients have come
together as a group to finance a third party review of the provider's entire Y2K
process,  including  testing and remediation.  This independent third party will
issue quarterly reports to the clients through the end of 1999.

Omega has also taken steps to ensure that internal hardware is Y2K compliant. As
of December 31, 1998,  all PCs had been tested,  with 298 or 61% passing all Y2K
tests,  175 or 36% requiring a manual date change on January 1, 2000, and 16, or
3% failing at least one test. All failed PCs will be systematically  upgraded or
replaced  first in  Omega's  ongoing PC  upgrade  process in 1999.  All other IT
hardware  (check  sorters and  printers)  have been tested in  conjunction  with
various software or items  processing  testing and have proven to function while
using dates into the Year 2000.


--------------------------------------------------------------------------------
                                                                              29
<PAGE>

                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                             OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS
                            -------------------------

Non IT  systems  that  are  micro-chip  driven  are  also  used  throughout  the
Corporation.  These include such items as proof machines, HVAC, vaults, security
systems,  elevators,  telephones,  fax machines, and ATM's. All of these vendors
have been contacted.  We have been assured that our vaults,  elevators and ATM's
are Y2K  compliant.  As of December  31, 1998,  the control  system for the HVAC
system at the Omega  Administration  Building  has been  tested  and found to be
compliant. However, steps have been taken to install a system of manual controls
as a contingency.  Proof machines,  equipment that micr-encodes all documents to
prepare for  processing,  have already been  upgraded  for Y2K  compliance.  All
remaining testing should be substantially completed by March 31, 1999.

Omega's  financial results are dependent upon the solvency of its customer base;
their  ability to repay loans and maintain  deposits.  Therefore,  a process has
begun in which  business  customers with existing  levels of aggregate  loans in
excess of a designated  amount are contacted,  reviewed,  and rated as to credit
risk.  74% of the credit  relationships  reviewed were deemed to be low risk, as
these  borrowers  are aware of the  potential  problems  with Y2K and are taking
steps to analyze and correct any  deficiencies.  The remaining 26% of the credit
relationships reviewed were deemed to be moderate risk. Management will continue
to closely  monitor their  compliance  activity on an ongoing basis.  Since June
1998, all business loan applicants have been asked to demonstrate Y2K compliance
as a requirement for loan approval.

Portions of Omega's  investment  portfolio could be at risk in the event that an
issuer of a security is not Y2K compliant.  An evaluation process is in place to
assess the potential  impact that this could have on Omega's  financial  results
and operations.  The analysis  includes  segmenting the portfolio by risk rating
(based on the type of security and the potential exposure to any negative impact
as a result of the Y2K issue).  If by September 30, 1999,  the analysis does not
indicate that the issuer of a security has properly  addressed the Y2K issue and
the  investment  is  determined  to be at risk,  then the  security may be sold,
leaving the investment portfolio with little or no investment risk.

Costs to address Omega's Y2K issues are being expensed as incurred and have been
insignificant  through  December 31, 1998.  The current  projections of costs to
complete  the  Y2K  remediation  are  estimated  to be  approximately  $700,000.
Included in this estimate is the amount of $175,000,  which will be  capitalized
for  replacement of a major piece of hardware.  The remaining  costs  (currently
projected at $525,000) will be expensed as incurred over the next twelve months.
The source of funds will come from Omega's IT budget. These expenditures are not
expected to be material to the  financial  condition or results of operations of
Omega.

Omega is currently in the process of developing business resumption  contingency
plans in preparation for dealing with any critical  issues,  which fail in spite
of all testing.  These plans should be substantially  complete by the end of the
first quarter of 1999.


--------------------------------------------------------------------------------
30
<PAGE>

                           CONSOLIDATED BALANCE SHEETS
                           ---------------------------

                  OMEGA FINANCIAL CORPORATION AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                        (In thousands, except share data)

<TABLE>
<CAPTION>
                                                                                                             December 31,
                                                                                                   --------------------------------
ASSETS                                                                                                 1998                 1997
                                                                                                   -----------          -----------
<S>                                                                                                <C>                  <C>        
Cash and due from banks (Notes 1 and 3) ..................................................         $    40,066          $    31,938
Interest bearing deposits with other financial institutions ..............................               1,455                  600
Federal funds sold .......................................................................              18,350               22,650
Investment securities held to maturity
  (market value-$117,954 and $117,344 respectively) (Notes 1 and 4) ......................             116,829              116,802
Investment securities available for sale (Notes 1 and 4) .................................             144,551              133,015

Total loans (Notes 1, 5, 6 and 17) .......................................................             723,485              692,861
Less:  Unearned discount .................................................................                (518)                (968)
       Allowance for loan losses .........................................................             (11,772)             (11,793)
                                                                                                   -----------          -----------
                                                                                                       711,195              680,100

Premises and equipment, net (Notes 1 and 7) ..............................................              16,816               17,589
Other assets (Note 1) ....................................................................              13,442               13,209
                                                                                                   -----------          -----------
TOTAL ASSETS .............................................................................         $ 1,062,704          $ 1,015,903
                                                                                                   ===========          ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
  Non-interest bearing ...................................................................         $   132,291          $   114,777
  Interest bearing .......................................................................             738,369              725,998
                                                                                                   -----------          -----------
                                                                                                       870,660              840,775

Short-term borrowings (Note 8) ...........................................................              17,638               18,260
Other liabilities ........................................................................              11,004                9,816
ESOP debt (Note 12) ......................................................................               3,837                4,034
Long-term debt (Note 8) ..................................................................               5,000                   --
Other interest bearing liabilities .......................................................                 585                  586
                                                                                                   -----------          -----------
TOTAL LIABILITIES ........................................................................             908,724              873,471

Commitments and Contingent Liabilities (Notes 10, 13 and 14)

Shareholders'  Equity  (Note 15)  
Preferred stock, par value $5.00 per share:
Authorized - 5,000,000 shares;
Issued and outstanding -
    219,781 shares Series A Convertible ..................................................               5,000                5,000
Unearned compensation related to ESOP debt ...............................................              (2,875)              (3,125)
Common stock, par value $5.00 per share:
  Authorized - 25,000,000 shares;
  Issued -
    9,137,270 shares at December 31, 1998; 9,050,730 shares at December 31, 1997
  Outstanding -
    8,960,197 shares at December 31, 1998;
    8,879,257 shares at December 31, 1997 ................................................              45,686               45,258
Capital surplus ..........................................................................               3,209                1,822
Retained earnings ........................................................................             104,285               94,426
Accumulated other comprehensive income ...................................................               4,713                4,998
Cost of common stock in treasury:
  177,073 shares at December 31, 1998;
  171,473 shares at December 31, 1997 ....................................................              (6,038)              (5,947)
                                                                                                   -----------          -----------
TOTAL SHAREHOLDERS' EQUITY ...............................................................             153,980              142,432
                                                                                                   -----------          -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ...............................................         $ 1,062,704          $ 1,015,903
                                                                                                   ===========          ===========
</TABLE>

The accompanying notes are an integral part of these statements.


--------------------------------------------------------------------------------
                                                                              31
<PAGE>

                        CONSOLIDATED STATEMENTS OF INCOME
                        ---------------------------------

                  OMEGA FINANCIAL CORPORATION AND SUBSIDIARIES
                        CONSOLIDATED STATEMENTS OF INCOME
                        (In thousands, except share data)

<TABLE>
<CAPTION>
                                                                                                  Years Ended December 31,
                                                                                       ---------------------------------------------
                                                                                         1998               1997               1996
                                                                                       -------            -------            -------
<S>                                                                                    <C>                <C>                <C>    
INTEREST INCOME:
Interest and fees on loans ................................................            $60,266            $61,683            $62,740
Interest and dividends on investment securities:
  Taxable interest income .................................................             11,148             12,004             10,711
  Tax-exempt interest income ..............................................              2,302              1,699              1,593
  Dividend income .........................................................                621                538                497
Other interest income .....................................................                931              1,074              1,179
                                                                                       -------            -------            -------
TOTAL INTEREST INCOME .....................................................             75,268             76,998             76,720

INTEREST EXPENSE:
Interest on deposits ......................................................             27,747             29,222             29,863
Interest on short-term borrowings .........................................                783                342                134
Interest on long-term debt and
  other interest bearing liabilities ......................................                120                313                323
                                                                                       -------            -------            -------
TOTAL INTEREST EXPENSE ....................................................             28,650             29,877             30,320
                                                                                       -------            -------            -------
NET INTEREST INCOME .......................................................             46,618             47,121             46,400
Provision for loan losses (Note 6) ........................................              1,060              1,030                979
                                                                                       -------            -------            -------
INCOME FROM CREDIT ACTIVITIES .............................................             45,558             46,091             45,421

OTHER INCOME:
Trust fees ................................................................              2,904              2,746              2,510
Service fees on deposit accounts ..........................................              3,427              3,281              2,897
Investment securities gains, net (Note 4)
  Investment securities held to maturity ..................................                 --                  2                  1
  Investment securities available for sale ................................              3,560              1,216                788
Gain on sale of loans and other assets ....................................                258                319                319
Other .....................................................................              3,196              2,592              2,505
                                                                                       -------            -------            -------
TOTAL OTHER INCOME ........................................................             13,345             10,156              9,020

OTHER EXPENSE:
Salaries and employee benefits (Note 12) ..................................             18,032             17,384             16,403
Net occupancy expense .....................................................              2,177              2,185              2,189
Equipment expense .........................................................              2,043              1,869              1,786
Data processing service ...................................................              1,618              1,542              1,533
FDIC insurance premiums ...................................................                101                104                  8
Other .....................................................................             10,218              8,698              9,168
                                                                                       -------            -------            -------
TOTAL OTHER EXPENSE .......................................................             34,189             31,782             31,087
                                                                                       -------            -------            -------
INCOME BEFORE INCOME TAXES ................................................             24,714             24,465             23,354
Income tax expense  (Notes 1 and 11) ......................................              7,622              7,497              7,127
                                                                                       -------            -------            -------
NET INCOME ................................................................            $17,092            $16,968            $16,227
                                                                                       =======            =======            =======
EARNINGS PER SHARE (Notes 1 and 9)
Basic .....................................................................            $  1.87            $  1.85            $  1.75
Diluted ...................................................................            $  1.79            $  1.77            $  1.69

Weighted average shares and equivalents:
Basic .....................................................................              8,949              8,950              9,057
Diluted ...................................................................              9,475              9,476              9,508
</TABLE>

All share and per share  information  has been  restated to give effect to the 3
for 2 stock split on April 30, 1997.

The accompanying notes are an integral part of these statements.


--------------------------------------------------------------------------------
32
<PAGE>

                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                 -----------------------------------------------

                  OMEGA FINANCIAL CORPORATION AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                        (In thousands, except share data)

<TABLE>
<CAPTION>
                                                          Years Ended December 31, 1996, 1997 and 1998
                                                    --------------------------------------------------------
                                                                Unearned                                      
                                                     Preferred    Comp-      Common      Capital    Retained  
                                                       Stock    ensation      Stock      Surplus    Earnings  
                                                    --------    --------    --------    --------    --------  
<S>                                                 <C>         <C>         <C>         <C>         <C>       
Balance at January 1, 1996 ........................ $  5,000    $ (4,373)   $ 30,245    $  5,134    $ 86,778  
Comprehensive income:
  Net income ......................................                                                   16,227
  Change in unrealized securities gains, net ......                                                           
 Total comprehensive income .......................                                                           
Common dividends declared -  $.56 per share .......                                                   (5,073) 
Cash dividends, preferred -  $1.80 per share ......                                                     (396) 
Amortization of unearned compensation .............                  998                                      
Tax benefit from employee stock options ...........                                                      113  
 Tax benefit from preferred stock
  dividends paid to ESOP ..........................                                                      100  
Purchase of treasury stock - 73,241 shares ........                                                           
Exercised employee stock options - 84,201 shares ..                              276         515              
                                                    --------    --------    --------    --------    --------  
Balance at December 31, 1996 ......................    5,000      (3,375)     30,521       5,649      97,749  
Comprehensive income:
  Net income ......................................                                                   16,968
Change in unrealized securities gains, net ........                                                           
Total comprehensive income ........................                                                           
Common dividends declared - $.65 per share ........                                                   (5,838) 
Cash dividends, preferred - $1.80 per share .......                                                     (396) 
Amortization of unearned compensation .............                  250                                      
 Tax benefit from employee stock options ..........                                                      321  
 Tax benefit from preferred stock
   dividends paid to ESOP .........................                                                       93  
Purchase of treasury stock - 279,603 shares .......                                                           
Exercised employee stock options - 108,610 shares .                              292         324              
Issuance of treasury stock to ESOP - 17,192 shares                                                            
3 for 2 stock split, issued in the form -
  of a stock dividend - 2,999,164 shares ..........                           14,445      (4,151)    (14,471) 
                                                    --------    --------    --------    --------    --------  
Balance at December 31, 1997 ......................    5,000      (3,125)     45,258       1,822      94,426  
Comprehensive income:
  Net income ......................................                                                   17,092
Change in unrealized securities gains, net ........                                                           
Total comprehensive income ........................                                                           
Common dividends declared - $.80 per share ........                                                   (7,169) 
Cash dividends, preferred - $1.80 per share .......                                                     (396) 
Amortization of unearned compensation .............                  250                                      
Tax benefit from employee stock options ...........                                                      245  
Tax benefit from preferred stock dividends
  paid to ESOP ....................................                                                       87  
Purchase of treasury stock - 23,300 shares ........                                                           
Exercised employee stock options - 87,530 shares ..                              428       1,387              
Issuance of treasury stock to ESOP - 17,700 shares                                                            
                                                    --------    --------    --------    --------    --------  
Balance at December 31, 1998 ...................... $  5,000   $  (2,875)   $ 45,686    $  3,209    $104,285  
                                                    ========   =========    ========    ========    ========  
</TABLE>

<TABLE>
<CAPTION>
                                                             Years Ended December 31, 1996 , 1997 and 1998
                                                             ---------------------------------------------
                                                               Accumulated       Cost of                  
                                                                Other Comp-      Common                  
                                                                rehensive        Stock                   
                                                                 Income       In Treasury         Total     
                                                                --------      -----------       --------      
<S>                                                             <C>             <C>             <C>           
Balance at January 1, 1996 ...................................  $  2,209        $   (822)       $124,171      
Comprehensive income:                                                                                         
  Net income .................................................                                                 
  Change in unrealized securities gains, net .................       398                                      
 Total comprehensive income ..................................                                    16,625      
Common dividends declared -  $.56 per share ..................                                    (5,073)     
Cash dividends, preferred -  $1.80 per share .................                                      (396)     
Amortization of unearned compensation ........................                                       998      
Tax benefit from employee stock options ......................                                       113      
 Tax benefit from preferred stock                                                                             
  dividends paid to ESOP .....................................                                       100      
Purchase of treasury stock - 73,241 shares ...................                    (2,383)         (2,383)     
Exercised employee stock options - 84,201 shares .............                       939           1,730      
                                                                --------        --------        --------      
Balance at December 31, 1996 .................................     2,607          (2,266)        135,885      
Comprehensive income:                                                                                         
  Net income .................................................                                                
Change in unrealized securities gains, net ...................     2,391                                      
Total comprehensive income ...................................                                    19,359      
Common dividends declared - $.65 per share ...................                                    (5,838)     
Cash dividends, preferred - $1.80 per share ..................                                      (396)     
Amortization of unearned compensation ........................                                       250      
 Tax benefit from employee stock options .....................                                       321      
 Tax benefit from preferred stock dividends paid to ESOP .....                                        93      
Purchase of treasury stock - 279,603 shares ..................                   (10,140)        (10,140)     
Exercised employee stock options - 108,610 shares ............                     1,712           2,328      
Issuance of treasury stock to ESOP - 17,192 shares ...........                       596             596      
3 for 2 stock split, issued in the form -                                                                     
  of a stock dividend - 2,999,164 shares .....................                     4,151             (26)     
                                                                --------        --------        --------      
Balance at December 31, 1997 .................................     4,998          (5,947)        142,432      
Comprehensive income:                                                                                         
  Net income .................................................                                                
Change in unrealized securities gains, net ...................      (285)                                     
Total comprehensive income ...................................                                    16,807      
Common dividends declared - $.80 per share ...................                                    (7,169)     
Cash dividends, preferred - $1.80 per share ..................                                      (396)     
Amortization of unearned compensation ........................                                       250      
Tax benefit from employee stock options ......................                                       245      
Tax benefit from preferred stock dividends paid to ESOP ......                                        87      
Purchase of treasury stock - 23,300 shares ...................                      (705)           (705)     
Exercised employee stock options - 87,530 shares .............                                     1,815      
Issuance of treasury stock to ESOP - 17,700 shares ...........                       614             614      
                                                                --------        --------        --------      
Balance at December 31, 1998 .................................  $  4,713        $ (6,038)       $153,980      
                                                                ========        ========        ========      
</TABLE>

Common  dividends in 1996 have been  adjusted to reflect the 3 for 2 stock split
on April 30, 1997.

The accompanying notes are an integral part of these statements.


--------------------------------------------------------------------------------
                                                                              33
<PAGE>

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                      -------------------------------------

                  OMEGA FINANCIAL CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In thousands)

<TABLE>
<CAPTION>
                                                                                                  Years Ended December 31,
                                                                                         ------------------------------------------
                                                                                           1998             1997             1996
                                                                                         --------         --------         --------
<S>                                                                                      <C>              <C>              <C>     
Cash flows from operating activities:
  Net income ....................................................................        $ 17,092         $ 16,968         $ 16,227
Adjustments to reconcile net income to net cash
  provided by operating activities:
  Depreciation and amortization .................................................           4,522            2,489            3,349
  Provision for loan losses .....................................................           1,060            1,030              979
  Gain on sale of investment securities .........................................          (2,913)          (1,218)            (789)
  Non-monetary exchange of cost-method investments ..............................            (421)              --               --
  Gain on sale of fixed assets and other property owned .........................            (214)             (77)            (304)
  Gain on sale of loans .........................................................             (45)            (241)             (15)
  (Increase) decrease in deferred tax asset .....................................            (427)              26             (188)
  (Increase) decrease in interest receivable and other assets ...................            (132)          (1,044)              45
  Decrease in interest payable ..................................................            (384)            (179)            (570)
  Increase (decrease) in taxes payable ..........................................              78             (689)             338
  Amortization of deferred net loan costs (fees) ................................             157             (104)            (233)
  Deferral of net loan fees .....................................................             476              299              237
  Increase in accounts payable and accrued expenses .............................           1,730              741              836
                                                                                         --------         --------         --------
    Total adjustments ...........................................................           3,487            1,033            3,685
                                                                                         --------         --------         --------
Net cash provided by operating activities .......................................          20,579           18,001           19,912

Cash flows from investing activities: Proceeds from the sale or maturity of:
    Interest bearing deposits with other financial institutions .................           1,622            1,269            3,471
    Investment securities available for sale - sales and maturities .............          64,824           44,350           43,446
    Investment securities held to maturity-- maturities .........................          42,824           39,286           29,974
  Purchase of:
    Interest bearing deposits with other financial institutions .................          (2,477)          (1,357)          (3,140)
    Investment securities available for sale ....................................         (76,237)         (45,290)         (47,592)
    Investment securities held to maturity ......................................         (42,814)         (41,793)         (47,098)
  (Increase) decrease in loans ..................................................         (34,479)             736           (5,207)
  Gross proceeds from sale of loans .............................................           1,736            2,957           10,919
  Capital expenditures ..........................................................          (1,177)          (1,783)          (2,448)
  Sale of fixed assets and other property owned .................................             908              502              524
  Decrease (increase) in federal funds sold .....................................           4,300           (4,575)          (5,615)
                                                                                         --------         --------         --------
Net cash used in investing activities ...........................................         (40,970)          (5,698)         (22,766)

Cash flows from financing activities:
  Increase (decrease) in deposits, net ..........................................          29,885           (5,255)          (4,152)
  Increase in borrowings, net ...................................................           4,378            7,968            3,047
  Net change in other interest bearing liabilities ..............................              (1)              (7)              63
  Dividends paid ................................................................          (7,185)          (6,053)          (4,080)
  Tax benefit from preferred stock dividend and
    stock option activity .......................................................             332              414              213
  Issuance of common stock ......................................................           1,815              616              791
  Acquisition of treasury stock .................................................            (705)         (10,140)          (2,383)
  Proceeds from sale of treasury stock ..........................................              --            1,712              939
                                                                                         --------         --------         --------
Net cash provided by (used in) financing activities .............................          28,519          (10,745)          (5,562)
                                                                                         --------         --------         --------
Net increase (decrease) in cash and due from banks ..............................        $  8,128         $  1,558         $ (8,416)
                                                                                         ========         ========         ======== 
Cash and due from banks at beginning of period ..................................        $ 31,938         $ 30,380         $ 38,796
Cash and due from banks at end of period ........................................          40,066           31,938           30,380
                                                                                         --------         --------         --------
Net increase (decrease) in cash and due from banks ..............................        $  8,128         $  1,558         $ (8,416)
                                                                                         ========         ========         ======== 
Interest paid ...................................................................        $ 29,079         $ 30,056         $ 30,890
Income taxes paid ...............................................................           7,517            7,112            6,944
</TABLE>

The accompanying notes are an integral part of these statements.

--------------------------------------------------------------------------------
34
<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   ------------------------------------------

                   OMEGA FINANCIAL CORPORATION AND SUBSIDIARES
                  YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996

NATURE OF OPERATIONS

Omega  Financial  Corporation is a bank holding company  operating  primarily in
central  Pennsylvania,  for the purpose of delivering  financial services within
its local  market.  Consisting  of three banks and four  non-bank  subsidiaries,
Omega  Financial  Corporation  provides retail and commercial  banking  services
through 44 offices in Centre,  Clinton,  Mifflin,  Juniata,  Blair,  Huntingdon,
Bedford and Montour counties. Its banks provide a full range of banking services
including an automatic teller machine network,  checking accounts, NOW accounts,
savings accounts,  money market accounts,  investment  certificates,  fixed rate
certificates  of deposit,  club accounts,  secured and unsecured  commercial and
consumer loans, construction and mortgage loans, safe deposit facilities, credit
loans  with  overdraft   checking   protection  and  student  loans.   The  bank
subsidiaries also provide a variety of trust services.  Management believes that
Omega Financial  Corporation has a relatively  stable deposit base with no major
seasonal depositor or group of depositors. Most of Omega Financial Corporation's
commercial customers are small and mid-sized businesses in central Pennsylvania.


1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

Principles of consolidation

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

On December 31, 1996, two of Omega's banking subsidiaries were consolidated into
one, when Montour Bank was merged into Omega Bank.

Investment securities

Investment   securities  within  the  Corporation's   investment  portfolio  are
classified as available for sale or held to maturity.  The  determination  as to
which portfolio to hold each security is made at the time of purchase,  based on
management's  intent.  All equity  investments  are  classified as available for
sale.  Debt  securities  are classified as available for sale when the intent is
for the  security  to be  available  to be used  for  strategic  asset/liability
management  purposes such as to manage interest rate risk,  prepayment  risk, or
liquidity  needs.  Securities  are  classified  as held to  maturity  when it is
management's intent to hold such securities until maturity.

Securities classified as available for sale are stated at market value, with the
unrealized  gains  and  losses,   net  of  tax,   reported  as  a  component  of
comprehensive  income, until realized.  Investment securities classified as held
to  maturity  are stated at cost,  adjusted  for  amortization  of  premium  and
accretion  of  discount  on a  level-yield  basis.  Interest  and  dividends  on
investment  securities  held to maturity are  recognized  as income when earned.
Gains or losses on the  disposition  of securities are based on the net proceeds
and the adjusted carrying amount of the specific securities sold (See Note 4).

Derivative financial instruments

Omega uses interest  rate  contracts to achieve  interest  rate risk  management
objectives.  These  contracts  are accounted for on an accrual basis and the net
interest  differential  is recognized  as an adjustment to interest  income (See
Note 2). The market value of these financial  instruments  represents the amount
Omega would receive or pay to terminate the agreements and is determined through
dealer quotes.

Loans

Interest on all loans is accrued  over the term of the loans based on the amount
of principal  outstanding,  except on certain installment loans granted at Omega
Bank, on which interest is recognized as income under a method that approximates
the interest method.

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


--------------------------------------------------------------------------------
                                                                              35
<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   ------------------------------------------

interest and  principal,  and when, in the judgment of  management,  the loan is
estimated to be fully collectible as to both principal and interest.

Loan origination fees and costs

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

Allowance for loan losses

For financial  reporting  purposes,  the  provision  for loan losses  charged to
current operating income is based on management's estimates, and ultimate losses
may vary from the current estimates.  These estimates are reviewed  periodically
and as  adjustments  become  necessary,  they are  reported  in  earnings in the
periods in which they become known.  The adequacy of the level of the reserve is
determined  by a  continuing  review of the  composition  and growth of the loan
portfolio,  overall portfolio  quality,  specific problem loans, prior loan loss
experience and current economic  conditions that may affect a borrower's ability
to pay.  The loan loss  provision  for federal  income tax  purposes is based on
current  income  tax  regulations,  which  allow  for  deductions  equal  to net
charge-offs.

Other real estate owned and held for investment

Assets  acquired in settlement of mortgage loan  indebtedness  are recorded as a
part of other real  estate  owned and held for  investment  and are  included in
other assets at the lower of the estimated  value of the asset (fair value minus
estimated costs to sell) or the carrying  amount of the loan.  Costs to maintain
the assets and subsequent  gains and losses  attributable  to their disposal are
included in other income and other expenses as  appropriate.  No depreciation or
amortization expense is recognized.  At December 31, 1998 and 1997, the carrying
value of other  real  estate  owned and held for  investment  was  $259,000  and
$618,000, respectively.

Bank premises and equipment and depreciation

Bank premises and equipment  are stated at cost less  accumulated  depreciation.
Depreciation  is computed  using both the  straight-line  and  declining-balance
methods, over the estimated useful lives of the assets (See Note 7).

Intangible Assets

Core deposit  intangibles and goodwill are included in other assets.  Intangible
assets are amortized using the straight-line  method over their estimated useful
lives  of  15  years.   Management   periodically   reviews  and   assesses  the
realizability  of intangible  assets in accordance  with  Statement of Financial
Accounting  Standards (SFAS) No. 121. This Statement requires the recognition of
an impairment loss when the estimate of undiscounted  future cash flows expected
to be generated by the asset is less than its carrying  amount.  Measurement  of
impairment  loss is based on the fair  value of the asset,  which is  determined
using  valuation  techniques  such as the present value of expected  future cash
flows. During the fourth quarter of 1998, management recorded an impairment loss
of $1,944,000 related to core deposit  intangibles and goodwill  associated with
an acquired  branch since it was  determined  at that time these assets had been
impaired.

Income taxes

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

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

Earnings per share

As of December 31, 1997, Omega adopted SFAS No. 128, "Earnings per Share", which
established  standards for computing  and  presenting  earnings per share (EPS).
This Statement  replaced the  presentation of primary EPS with a presentation of
basic  EPS,  and  replaced  the   presentation  of  fully  diluted  EPS  with  a
presentation of diluted EPS. Basic EPS is computed by dividing income  available
to  common  stockholders  by  the  weighted-average   number  of  common  shares
outstanding  for the  period.  On a diluted  basis,  both  earnings  and  shares
outstanding  are adjusted to assume the conversion of all  potentially  dilutive
securities  into common  stock.  All prior  period EPS data  presented  in these
financial  statements  has been  restated to conform with this data (see Notes 9
and 19).

Comprehensive income

Effective January 1, 1998, Omega adopted SFAS No. 130, "Reporting  Comprehensive
Income",   which  established  new  rules  for  the  reporting  and  display  of
comprehensive  income and its components.  The adoption had no impact on Omega's
net income or shareholders'  equity. The objective of the Statement is to report
a  measure  of  all  changes  in  equity  of  an  enterprise  that  result  from
transactions and other economic events of the period other than transactions


--------------------------------------------------------------------------------
36
<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   ------------------------------------------

with owners.  SFAS No. 130 requires  presentation of  comprehensive  income (net
income  plus all other  changes in net assets  from  nonowner  sources)  and its
components in the financial statements. Reclassification of financial statements
for earlier periods is provided for comparative  purposes.  Omega has elected to
reflect the statement of comprehensive income within the consolidated statements
of shareholders' equity (see Note 16).

Segment and related information

Effective  January 1, 1998,  Omega  adopted  SFAS No.  131,  "Disclosures  About
Segments of an Enterprise and Related  Information",  which requires disclosures
about segments of an enterprise and related  information to provide  information
about the different types of business  activities in which an enterprise engages
and the different  economic  environments  in which it operates to help users of
financial  statements  better  understand the enterprise's  performance,  better
assess its prospects for future net cash flows and make more informed  judgments
about the  enterprise  as a whole.  Omega is a bank  holding  company  operating
primarily  in central  Pennsylvania,  with the purpose of  delivering  financial
services  within  its local  market  by means of a  branching  network.  Each of
Omega's entities are part of the same reporting segment, whose operating results
are regularly reviewed and managed by a centralized  executive management group.
Therefore,   consolidated  financial  statements,  as  presented,   reflect  the
operating results of the financial services segment of our business.

Accounting pronouncements not yet adopted

During June 1998, the Financial  Accounting Standards Board ("FASB") issued SFAS
No. 133,  "Accounting for Derivative  Instruments and Hedging  Activities".  The
Statement  establishes  accounting and reporting  standards requiring that every
derivative  instrument  (including  certain derivative  instruments  embedded in
other  contracts)  be  recorded  in the  balance  sheet  as  either  an asset or
liability  measured at its fair value. SFAS No. 133 requires that changes in the
derivative's  fair value be  recognized  currently in earnings  unless  specific
hedge  criteria are met.  Special  accounting  for  qualifying  hedges  allows a
derivative's  gains and losses to offset  related  results on the hedged item in
the income  statement,  and  requires  that a company  must  formally  document,
designate  and assess the  effectiveness  of  transactions  that  receive  hedge
accounting treatment.

SFAS No. 133 is  effective  for fiscal  years  beginning  after June 15, 1999. A
company may also  implement  the  Statement  as of the  beginning  of any fiscal
quarter after issuance. The Statement cannot be applied retroactively.

Management  has  evaluated  the probable  impact of adopting SFAS No. 133 on the
financial  statements  and  believes  it to be  immaterial  to  the  results  of
operations.

2.  FAIR VALUE OF FINANCIAL INSTRUMENTS

SFAS No. 107, "Disclosure about Fair Value of Financial  Instruments",  requires
disclosure  of  estimated  fair  values of Omega's  financial  instruments.  The
following  describes the  estimated  fair value of the  Corporation's  financial
instruments as well as the significant methods and assumptions used to determine
these estimated fair values.

The fair value  disclosures  are made based on relevant  market  information for
similar  credit risk and  management  assumptions.  The estimated  values do not
reflect any premium or discount  that may be realized  from offering for sale at
one time  Omega's  entire  holdings of a  particular  financial  instrument.  In
addition, the fair value estimates do not consider the potential income taxes or
other  expenses  that  would  be  incurred  in the  actual  sale of an  asset or
settlement of a liability.

Cash  and due  from  banks,  Interest  bearing  deposits  with  other  financial
institutions  and Federal  funds sold - The carrying  amounts  approximate  fair
value due to the short maturity of these instruments.

Investment securities - The fair value of investment securities is determined by
reference to quoted market prices or dealer quotes (see Note 4).

Commercial,  financial and agricultural loans - These loans are made on either a
floating  or fixed  rate  basis.  The  estimated  fair  value of these  loans is
determined by discounting the future contractual cash flows using rates at which
similar loans would be made to borrowers with similar credit ratings and for the
same  remaining  maturity or repricing  period.  The discount rates utilized for
these  loans  are  equivalent  to the  national  prime  rate  with a  spread  of
approximately  25 to 100 basis points at December 31, 1998 and a spread of 50 to
125 basis points at December 31, 1997.  Estimated fair value for commercial real
estate  and  construction  loans is  determined  on the same  basis as the above
commercial loans.

Real estate mortgage loans - This category is comprised primarily of residential
mortgages that are adjustable rate mortgages (ARMs) or fixed rate mortgages. The
estimated  fair value of these  loans is arrived  at by  discounting  the future
contractual cash flows at the current market rate for these loans. No prepayment
or acceleration of the cash flows is assumed.  The rates utilized for adjustable
rate mortgages are equivalent to the U.S. Treasury rate for the same term with a
spread of  approximately  150 to 270 basis  points at  December  31,  1998 and a
spread of 150 to 250 basis points at December 31, 1997.  The current market rate
for the fixed rate mortgages ranged from 6.90% to 7.35% at December 31, 1998 and
from 7.25% to 7.75% at December 31, 1997.


--------------------------------------------------------------------------------
                                                                              37
<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   ------------------------------------------

Home equity - This category is comprised primarily of fixed rate loans, but does
include home equity lines of credit which have floating rates. The fair value of
the fixed rate loans is estimated by  discounting  the future  contractual  cash
flows using rates at which similar loans would be made to borrowers for the same
remaining  maturity.  Home  equity  lines of credit are on a floating  basis and
approximate current market rates.

Personal  loans and lease  financing - This  category is comprised  primarily of
fixed rate loans,  but does include personal lines of credit which have floating
rates.  The fair value of the fixed rate loans is estimated by  discounting  the
future  contractual  cash  flows.  The  discount  factor for these  loans is the
current  national  market  rate for a 48  month  automobile  loan  plus 50 basis
points.  This  rate  was  8.97%  and  9.20%  on  December  31,  1998  and  1997,
respectively.  Personal lines of credit are on a floating basis and  approximate
current market rates.

Demand and  savings  accounts - The fair value of these  deposits  is the amount
payable on demand.

Time  deposits - The  estimated  fair value is  determined  by  discounting  the
contractual  cash  flows,  using the rates  currently  offered  for  deposits of
similar  remaining  maturities.   The  rates  utilized  for  time  deposits  are
equivalent to the U.S. Treasury rate for the same term minus a spread of 0 to 40
basis  points at  December  31, 1998 and 35 to 60 basis  points at December  31,
1997.

All other interest bearing liabilities'  carrying values approximate fair value.
Short-term  and long-term  borrowings  are on a floating  basis and  approximate
current market rates. Other interest bearing liabilities  reprice  semi-annually
at current market rates.

At December 31, 1998,  Omega had existing  interest rate  contracts with a total
notional  balance of $30,000,000.  These agreements had a positive fair value of
$48,000  based on dealer  quotes on that date.  At December 31,  1997,  existing
interest rate swap agreements had a total notional  balance of $40,000,000 and a
negative fair value of $54,000 (see Note 13).

Commitments  to extend credit and standby  letters of credit - The fair value of
loan  commitments  and  standby  letters of credit is  estimated  using the fees
currently  charged to enter into  similar  agreements,  taking into  account the
remaining  terms of the  agreement  and the  present  credit  worthiness  of the
counter parties. For fixed rate loan commitments,  fair value also considers the
difference  between  current levels of interest rates and the committed rate. As
of December 31, 1998 and 1997, the commitment amount approximates fair value for
these financial instruments.

<TABLE>
<CAPTION>
                                                                                            (in thousands)
                                                                       December 31, 1998                    December 31, 1997
                                                                 ------------------------------       ------------------------------
                                                                    Book               Fair              Book               Fair
                                                                    Value              Value             Value              Value
                                                                 -----------        -----------       -----------        -----------
<S>                                                              <C>                <C>               <C>                <C>        
Cash and due from banks ..................................       $    40,066        $    40,066       $    31,938        $    31,938
Interest bearing deposits ................................             1,455              1,455               600                600
Federal funds sold .......................................            18,350             18,350            22,650             22,650
Investment securities held to maturity ...................           116,829            117,954           116,802            117,344
Investment securities available for sale .................           144,551            144,551           133,015            133,015
Loans (net of unearned interest):
  Commercial, financial and agricultural .................            97,901             96,037           126,740            125,970
  Real estate - commercial ...............................           198,987            198,496           141,485            140,725
  Real estate - construction .............................            15,890             15,993            21,167             21,182
  Real estate - mortgage .................................           227,846            229,437           212,780            214,226
  Home equity ............................................            83,800             84,172            63,905             64,154
  Personal ...............................................            94,987             96,102           121,447            121,991
  Lease financing ........................................             3,556              3,577             4,369              4,364
  Allowance for loan losses ..............................           (11,772)                --           (11,793)                --
                                                                 -----------        -----------       -----------        -----------
Total loans ..............................................           711,195            723,814           680,100            692,612
Interest receivable ......................................             7,512              7,512             7,855              7,855
                                                                 -----------        -----------       -----------        -----------
Total financial assets ...................................       $ 1,039,958        $ 1,053,702       $   992,960        $ 1,006,014
                                                                 ===========        ===========       ===========        ===========

Demand deposits ..........................................       $   320,462        $   320,462       $   277,042        $   277,042
Savings deposits .........................................           155,710            155,710           154,640            154,640
Time deposits ............................................           394,488            398,766           409,093            411,583
Short-term borrowings ....................................            17,638             17,638            13,260             13,260
Long-term debt ...........................................             5,000              4,998             5,000              4,997
Other interest bearing liabilities .......................             4,422              4,422             4,620              4,620
Interest payable .........................................             1,858              1,858             2,213              2,213
                                                                 -----------        -----------       -----------        -----------
Total financial liabilities ..............................       $   899,578        $   903,854       $   865,868        $   868,355
                                                                 ===========        ===========       ===========        ===========
</TABLE>


3.  RESTRICTIONS ON CASH AND DUE FROM BANKS

Omega's banking subsidiaries are required to maintain cash reserve balances with
the Federal Reserve Bank. The total required  reserve  balances were $10,109,000
and $2,158,000 as of December 31, 1998 and 1997, respectively.


--------------------------------------------------------------------------------
38

<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   ------------------------------------------

4.  INVESTMENT SECURITIES (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                           December 31, 1998
                                                                  -----------------------------------------------------------------
Securities classified as Held to Maturity                                                                     Gross         Gross
                                                                 Amortized        Market        Weighted   Unrealized     Unrealized
Type and maturity                                                   Cost          Value        Avg. Yield     Gains         Losses
-----------------------------------------------------------      ---------       --------      ----------  ----------     ----------
<S>                                                               <C>            <C>               <C>      <C>            <C>     
U.S. Treasury securities and obligations of
  other U.S. Government agencies
  and corporations
-----------------------------------------------------------
  Within one year .........................................       $  6,018       $  6,068          6.35%    $     50       $     --
  After one year but within five years ....................         20,473         20,697          6.08          234            (10)
  After five years but within ten years ...................             --             --           --            --             --
  After ten years .........................................             --             --           --            --             --

Obligations of state and political subdivisions
-----------------------------------------------------------
  Within one year .........................................            927            937          6.24           10             --
  After one year but within five years ....................          2,174          2,228          6.25           54             --
  After five years but within ten years ...................          1,883          1,997          6.69          114             --
  After ten years .........................................             --             --           --            --             --

Corporate and other securities
-----------------------------------------------------------
  Within one year .........................................          7,667          7,692          5.99           26             (1)
  After one year but within five years ....................         41,484         41,959          6.13          483             (8)
  After five years but within ten years ...................          1,801          1,807          6.15           16            (10)
  After ten years .........................................          2,099          2,102          6.24            3             --

Mortgage-backed securities
-----------------------------------------------------------
  Within one year .........................................          2,537          2,543          6.16            8             (2)
  After one year but within five years ....................          8,599          8,652          6.29           53             --
  After five years but within ten years ...................          5,874          5,904          5.96           33             (3)
  After ten years .........................................         10,544         10,619          5.81           81             (6)

Investment in low income housing projects .................            541            541           N/M           --             --

Common stock ..............................................          4,208          4,208           N/M           --             --
                                                                  --------       --------          ----     --------       --------
Total .....................................................       $116,829       $117,954          6.11%    $  1,165       $    (40)
                                                                  ========       ========          ====     ========       ======== 

<CAPTION>
                                                                                           December 31, 1998
                                                                  -----------------------------------------------------------------
Securities classified as Available for Sale                                                                   Gross         Gross
                                                                 Amortized         Market       Weighted   Unrealized     Unrealized
Type and maturity                                                   Cost           Value       Avg. Yield     Gains         Losses
-----------------------------------------------------------      ---------       --------      ----------  ----------     ----------
<S>                                                               <C>            <C>               <C>      <C>            <C>     
U.S. Treasury securities and obligations of
  other U.S. Government agencies
  and corporations
-----------------------------------------------------------
  Within one year .........................................       $ 29,039       $ 29,173          5.98%    $    134       $     --
  After one year but within five years ....................         29,168         29,312          5.37          160            (16)
  After five years but within ten years ...................             --             --            --           --             --
  After ten years .........................................             --             --            --           --             --

Obligations of state and political subdivisions
-----------------------------------------------------------
  Within one year .........................................          3,870          3,894          6.55           26             (2)
  After one year but within five years ....................         61,427         62,500          6.26        1,116            (43)
  After five years but within ten years ...................          6,310          6,387          5.94           77             --
  After ten years .........................................          1,724          1,732          6.74           14             (6)

Common stock ..............................................          5,773         11,553           N/M        5,812            (32)
                                                                  --------       --------          ----     --------       --------
Total .....................................................       $137,311       $144,551          6.00%    $  7,339       $    (99)
                                                                  ========       ========          ====     ========       ======== 
</TABLE>


--------------------------------------------------------------------------------
                                                                              39

<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   ------------------------------------------

<TABLE>
<CAPTION>
                                                                                           December 31, 1997
                                                                  -----------------------------------------------------------------
Securities classified as Held to Maturity                                                                     Gross         Gross
                                                                 Amortized        Market        Weighted   Unrealized     Unrealized
Type and maturity                                                   Cost          Value        Avg. Yield     Gains         Losses
-----------------------------------------------------------      ---------       --------      ----------  ----------     ----------
<S>                                                               <C>            <C>               <C>      <C>            <C>      
U.S. Treasury securities and obligations of
  other U.S. Government agencies
  and corporations
-----------------------------------------------------------
  Within one year .........................................       $  2,993       $  3,003          6.02%    $     13       $     (3)
  After one year but within five years ....................         18,014         18,186          6.29          172             --
  After five years but within ten years ...................          3,000          3,011          6.51           11             --
  After ten years .........................................             --             --            --           --             --

Obligations of state and political subdivisions
-----------------------------------------------------------
  Within one year .........................................          1,281          1,284          6.07            3             --
  After one year but within five years ....................          2,626          2,646          6.26           20             --
  After five years but within ten years ...................          1,892          1,940          6.69           48             --
  After ten years .........................................             --             --            --           --             --

Corporate and other securities
-----------------------------------------------------------
  Within one year .........................................          5,883          5,873          6.04            5            (15)
  After one year but within five years ....................         21,590         21,736          6.32          151             (5)
  After five years but within ten years ...................          9,472          9,514          6.22           44             (2)
  After ten years .........................................            160            162          6.71            2             --

Mortgage-backed securities
-----------------------------------------------------------
  Within one year .........................................          2,600          2,590          5.52            1            (11)
  After one year but within five years ....................         13,645         13,641          6.34           31            (35)
  After five years but within ten years ...................         11,625         11,679          6.26           61             (7)
  After ten years .........................................         17,400         17,458          5.83          113            (55)

Investment in low income housing projects .................            489            489           N/M           --             --

Common stock ..............................................          4,132          4,132           N/M           --             --
                                                                  --------       --------          ----     --------       --------
Total .....................................................       $116,802       $117,344          6.19%    $    675       $   (133)
                                                                  ========       ========          ====     ========       ======== 

<CAPTION>
                                                                                           December 31, 1997
                                                                  -----------------------------------------------------------------
Securities classified as Available for Sale                                                                   Gross         Gross
                                                                 Amortized        Market        Weighted   Unrealized     Unrealized
Type and maturity                                                   Cost          Value        Avg. Yield     Gains         Losses
-----------------------------------------------------------      ---------       --------      ----------  ----------     ----------
<S>                                                               <C>            <C>               <C>      <C>            <C>      
U.S. Treasury securities and obligations of
  other U.S. Government agencies
  and corporations
-----------------------------------------------------------
  Within one year .........................................       $ 54,597       $ 54,612          5.66%    $     63       $    (48)
  After one year but within five years ....................         24,546         24,629          6.08          113            (30)
  After five years but within ten years ...................             --             --            --           --             --
  After ten years .........................................             --             --            --           --             --

Obligations of state and political subdivisions
-----------------------------------------------------------
  Within one year .........................................          6,360          6,369          6.05           13             (4)
  After one year but within five years ....................         26,473         26,857          6.72          388             (4)
  After five years but within ten years ...................          6,903          6,999          6.72           96             --
  After ten years .........................................          1,045          1,057          7.26           18             (6)

Common stock ..............................................          5,414         12,492           N/M        7,078             --
                                                                  --------       --------          ----     --------       --------
Total .....................................................       $125,338       $133,015          6.08%    $  7,769       $    (92)
                                                                  ========       ========          ====     ========       ======== 
</TABLE>


--------------------------------------------------------------------------------
40

<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   ------------------------------------------

<TABLE>
<CAPTION>
                                                                                           December 31, 1996
                                                                  -----------------------------------------------------------------
Securities classified as Held to Maturity                                                                     Gross         Gross
                                                                 Amortized        Market        Weighted   Unrealized     Unrealized
Type and maturity                                                   Cost          Value        Avg. Yield     Gains         Losses
-----------------------------------------------------------      ---------       --------      ----------  ----------     ----------
<S>                                                               <C>            <C>               <C>      <C>            <C>      
U.S. Treasury securities and obligations of
  other U.S. Government agencies
  and corporations
-----------------------------------------------------------
  Within one year .........................................       $     75       $     75          6.50%    $     --       $     --
  After one year but within five years ....................          6,972          6,974          6.12           24            (22)
  After five years but within ten years ...................             --             --            --           --             --
  After ten years .........................................             --             --            --           --             --

Obligations of state and political subdivisions
-----------------------------------------------------------
  Within one year .........................................          1,369          1,375          7.14            6             --
  After one year but within five years ....................          3,002          3,001          6.06            6             (7)
  After five years but within ten years ...................            524            517          6.10           --             (7)
  After ten years .........................................          1,920          1,914          6.80           --             (6)

Corporate and other securities
-----------------------------------------------------------
  Within one year .........................................          3,808          3,800          5.39            3            (11)
  After one year but within five years ....................         16,330         16,289          6.04           57            (98)
  After five years but within ten years ...................          7,582          7,616          6.13           35             (1)
  After ten years .........................................            160            160          7.84            1             (1)

Mortgage-backed securities
-----------------------------------------------------------
  Within one year .........................................            338            339          6.76            1             --
  After one year but within five years ....................         24,063         24,008          6.17           61           (116)
  After five years but within ten years ...................         17,381         17,491          6.26          124            (14)
  After ten years .........................................         26,139         26,083          5.73          111           (167)

Investment in low income housing projects .................            438            438           N/M           --             --

Common stock ..............................................          4,091          4,091           N/M           --             --
                                                                  --------       --------          ----     --------       --------
Total .....................................................       $114,192       $114,171          6.05%    $    429       $   (450)
                                                                  ========       ========          ====     ========       ======== 

<CAPTION>
                                                                                           December 31, 1996
                                                                  -----------------------------------------------------------------
Securities classified as Available for Sale                                                                   Gross         Gross
                                                                 Amortized        Market        Weighted   Unrealized     Unrealized
Type and maturity                                                   Cost          Value        Avg. Yield     Gains         Losses
-----------------------------------------------------------      ---------       --------      ----------  ----------     ----------
<S>                                                               <C>            <C>               <C>      <C>            <C>      
U.S. Treasury securities and obligations of
  other U.S. Government agencies
  and corporations
-----------------------------------------------------------
  Within one year .........................................       $ 26,774       $ 26,758          5.47%    $     20       $    (36)
  After one year but within five years ....................         59,589         59,434          5.75          122           (277)
  After five years but within ten years ...................             --             --            --           --             --
  After ten years .........................................             --             --            --           --             --

Obligations of state and political subdivisions
-----------------------------------------------------------
  Within one year .........................................         10,189         10,088          7.57           38           (139)
  After one year but within five years ....................         18,607         18,684          6.89          126            (49)
  After five years but within ten years ...................          1,708          1,716          7.48            8             --
  After ten years .........................................          1,739          1,741          6.79           20            (18)

Common stock ..............................................          5,049          9,233           N/M        4,231            (47)
                                                                  --------       --------          ----     --------       -------- 
Total .....................................................       $123,655       $127,654          6.06%    $  4,565       $   (566)
                                                                  ========       ========          ====     ========       ======== 
</TABLE>

N/M = Not meaningful


--------------------------------------------------------------------------------
                                                                              41
<PAGE>


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   ------------------------------------------


Investment yields were computed on a tax equivalent basis (using a 35% tax rate)
for  obligations of state and political  subdivisions.  Total  weighted  average
yield does not include the common stock holdings.

Certain obligations of the U.S. Government and state and political  subdivisions
are pledged to secure public  monies as required by law and for other  purposes.
The carrying value of the pledged assets  amounted to  $89,598,000,  $85,628,000
and $80,405,000 at December 31, 1998, 1997 and 1996, respectively.

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

                                                     Years Ended December 31,
                                                  ------------------------------
                                                     1998       1997       1996
                                                  --------   --------   --------
    Gross proceeds from securities transactions   $107,648   $ 83,636   $ 73,420
    Securities available for sale:
      Realized gains ..........................      2,913      1,422        842
      Realized losses .........................         --        206         54
    Securities held to maturity:
      Realized gains ..........................         --          2          1
      Realized losses .........................         --         --         --

5.   LOANS

Loans  outstanding  at the end of  each  year  consisted  of the  following  (in
thousands):

<TABLE>
<CAPTION>
                                                                                          December 31,
                                                            ------------------------------------------------------------------------
                                                              1998            1997            1996            1995            1994
                                                            --------        --------        --------        --------        --------
<S>                                                         <C>             <C>             <C>             <C>             <C>     
Commercial, financial and agricultural .............        $ 97,901        $126,740        $131,147        $136,537        $138,267
Real estate - commercial ...........................         198,987         141,485         136,250         127,462         103,892
Real estate - construction .........................          15,890          21,167          19,680          18,346          12,252
Real estate - mortgage .............................         227,846         212,780         206,653         209,453         205,524
Home equity ........................................          83,800          63,905          45,182          39,827          35,974
Personal ...........................................          95,060         121,813         154,587         170,529         148,731
Lease financing ....................................           4,001           4,971           4,824           4,486           4,071
                                                            --------        --------        --------        --------        --------
     Total .........................................        $723,485        $692,861        $698,323        $706,640        $648,711
                                                            ========        ========        ========        ========        ========
</TABLE>


Non-accrual  loans at December 31, 1998 and 1997 were $5,627,000 and $4,762,000,
respectively,  representing .78% and .69% of loans. Interest income not recorded
on non-accrual loans in 1998, 1997 and 1996 was $542,000, $401,000 and $201,000,
respectively. Gross interest income that would have been recorded on non-accrual
loans had these loans been in a performing status was $652,000 in 1998, of which
$110,000 was included in interest income for the year ended December 31, 1998.


--------------------------------------------------------------------------------
42
<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   ------------------------------------------


6.   ALLOWANCE FOR LOAN LOSSES

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

<TABLE>
<CAPTION>
                                                                                      Years Ended December 31,
                                                                -------------------------------------------------------------------
                                                                  1998           1997           1996           1995           1994
                                                                -------        -------        -------        -------        -------
<S>                                                             <C>            <C>            <C>            <C>            <C>    
Balance of allowance - beginning of period ..............       $11,793        $11,820        $11,668        $11,057        $11,168
Loans charged off:
  Commercial, financial and agricultural ................           463             70            428            149            480
  Real estate -
    Commercial ..........................................           283            348             77             --              5
    Mortgage ............................................            --             --             --            119            130
  Personal ..............................................           682            984            671            585            485
                                                                -------        -------        -------        -------        -------
      Total charge-offs .................................         1,428          1,402          1,176            853          1,100

Recoveries of loans previously charged off:
  Commercial, financial and agricultural ................           146            225            181            101            160
  Real estate -
    Commercial ..........................................            96              6             38             --             17
    Mortgage ............................................            --             --             --             87             45
  Personal ..............................................           105            114            130            147            144
                                                                -------        -------        -------        -------        -------
      Total recoveries ..................................           347            345            349            335            366
                                                                -------        -------        -------        -------        -------

Net charge-offs .........................................         1,081          1,057            827            518            734
Provision for loan losses ...............................         1,060          1,030            979            713            623
Allowance acquired through bank purchase ................            --             --             --            416             --
                                                                -------        -------        -------        -------        -------
Balance of allowance - end of period ....................       $11,772        $11,793        $11,820        $11,668        $11,057
                                                                =======        =======        =======        =======        =======
Ratio of net charge-offs during period to
average loans outstanding ...............................          0.15%          0.15%          0.12%          0.08%          0.12%
                                                                =======        =======        =======        =======        =======
</TABLE>


As of December 31, 1998, 1997 and 1996, the recorded investment in the loans for
which  impairment has been recognized in accordance with SFAS No. 114 as amended
by SFAS No. 118 is $3,907,000,  $3,471,000 and $931,000, respectively. The total
allowance for loan losses related to those impaired loans is $890,000,  $585,000
and  $222,000,  at December 31,  1998,  1997 and 1996,  respectively.  It is the
policy of the Corporation to recognize income on impaired loans on a cash basis,
only to the extent that it exceeds principal balance recovery.


7.   PREMISES AND EQUIPMENT

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

<TABLE>
<CAPTION>
                                                                                   December 31,
                                                            Estimated     ----------------------------
                                                           Useful Life       1998              1997
                                                           ----------     ----------        ----------
<S>                                                        <C>            <C>               <C>       
        Land .........................................         --         $    2,371        $    2,371
        Premises and leasehold improvements ..........     5-40 years         20,052            19,809
        Furniture, computer software
          and equipment ..............................     3-20 years         18,414            17,489
        Construction in progress .....................         --                194               221
                                                                          ----------        ----------
                                                                              41,031            39,890
        Less accumulated depreciation ................                       (24,215)          (22,301)
                                                                          ----------        ----------
                                                                          $   16,816        $   17,589
                                                                          ==========        ==========
</TABLE>

Depreciation  expense  on  premises  and  equipment  charged to  operations  was
$1,950,000 in 1998, $1,831,000 in 1997 and $1,762,000 in 1996.


--------------------------------------------------------------------------------
                                                                              43
<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   ------------------------------------------

8.  BORROWINGS

Borrowings consist of the following (in thousands):

                                                                  December 31,
                                                               -----------------
Short-Term Borrowings:                                           1998      1997
                                                               -------   -------
Retail repurchase agreements ...............................   $17,638   $13,260
Note payable to Federal Home Loan Bank, with variable rates
   payable at Libor plus 2 basis points ....................        --     5,000
                                                               -------   -------
                                                               $17,638   $18,260
                                                               =======   =======
Long-Term Debt:
Note payable to Federal Home Loan Bank, with variable rates
   payable at Libor plus 5 basis points ....................   $ 5,000   $    --

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

The  short-term  note  payable,  as of  December  31,  1997,  in the  amount  of
$5,000,000 with the Federal Home Loan Bank matured in 1998, and was renewed as a
three-year  long-term  note  payable.  The  $5,000,000  Federal  Home  Loan Bank
long-term  note payable at December 31, 1998 will mature in 2001,  with the full
principal  balance  payable  upon  maturity.   Omega  must  maintain  sufficient
qualifying collateral, as defined, to secure all outstanding advances.

Omega has lines of credit  established with various  financial  institutions for
overnight funding needs. These lines provided a total of $18,000,000 in 1998 and
$20,000,000  in 1997,  with  interest  payable at the daily  federal funds rate.
There were no  borrowings  on December 31, 1998 or December 31, 1997 under these
credit facilities.

Omega also has credit with the Federal Home Loan Bank of Pittsburgh with a total
borrowing capacity of $62,572,000 (including overnight borrowing) as of December
31, 1998. If the Corporation were to purchase  additional Federal Home Loan Bank
stock, the maximum  borrowing  capacity could be increased to $282,733,000.  The
Federal Home Loan Bank is a source of both short-term and long-term funding. The
Corporation  must maintain  sufficient  qualifying  collateral,  as defined,  to
secure all outstanding advances.

9.  CALCULATION OF EARNINGS PER SHARE

The following  table shows the  calculation  of earnings per share for the years
ended  December 31, 1998,  1997 and 1996.  Prior year data has been  restated to
reflect the 3 for 2 stock split in the form of a dividend in 1997 as well as the
adoption of SFAS No. 128, "Earnings per Share".

<TABLE>
<CAPTION>
                                                                        Years Ended December 31,
                                                    1998                            1997                            1996
                                       ------------------------------ ------------------------------- ------------------------------
                                                   Shares   Per-Share              Shares   Per-Share              Shares  Per-Share
                                         Income    Denom-              Income      Denom-              Income      Denom-
                                       Numerator   inator    Amount   Numerator    inator    Amount   Numerator    inator    Amount
                                       ------------------------------ ------------------------------- ------------------------------
<S>                                     <C>         <C>      <C>       <C>          <C>      <C>       <C>          <C>      <C>   
Net income ...........................  $17,092                        $16,968                         $16,227              
Less: Preferred stock dividends ......     (396)                          (396)                           (396)             
                                        -------                        -------                         -------              
Basic EPS                                                                                                                   
Income available to common                                                                                                  
    shareholders .....................   16,696     8,949    $ 1.87     16,572      8,950    $ 1.85     15,831      9,057    $ 1.75
                                                             ======                          ======                          ======
Effect of Dilutive Securities                                                                                               
Impact of:                                                                                                                  
     Assumed conversion of preferred                                                                                        
         to common stock .............                346                             346                             346   
     Assumed excercises of outstanding                                                                                      
         options .....................                180                             180                             105   
     Preferred stock dividends                                                                                              
        available to common                                                                                                 
        shareholders .................      396                            396                            396               
     Elimination of tax benefit of                                                                                          
        allocated preferred dividends       (51)                           (45)                           (38)              
     Additional expense required to                                                                                         
        fund ESOP debt ...............      (77)                          (111)                          (131)              
                                        -------     -----              -------      -----              -------      -----   
Diluted EPS                                                                                                                 
Income available to common                                                                                                  
     shareholders plus assumed                                                                                              
     conversions .....................  $16,964     9,475    $ 1.79    $16,812      9,476    $ 1.77    $16,058      9,508    $ 1.69
                                        =======     =====    ======    =======      =====    ======    =======      =====    ======
</TABLE>


--------------------------------------------------------------------------------
44

<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   ------------------------------------------

10.  OPERATING LEASE OBLIGATIONS

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

The following is a summary of future minimum  rental  payments for the next five
years   required  under   operating   leases  that  have  initial  or  remaining
noncancellable  lease  terms in excess of one year as of  December  31, 1998 (in
thousands):

            Years ending December 31,
                  1999..................................   $    221
                  2000..................................        166
                  2001..................................        153
                  2002..................................        138
                  2003..................................        134
                  Later years...........................        842
                                                           --------
                  Total minimum payments required.......   $  1,654
                                                           ========

Rental expense  charged to  operations,  net of sublease  income,  was $106,000,
$73,000  and  $88,000  in 1998,  1997 and  1996,  respectively,  which  includes
short-term cancellable leases.


11.  INCOME TAXES

The components of income tax expense for the three years ended December 31, 1998
were (in thousands):

                                            1998           1997           1996
                                          -------        -------        -------
Current tax expense ...............       $ 7,948        $ 7,625        $ 7,451
Deferred tax benefit ..............          (326)          (128)          (324)
                                          -------        -------        -------
Total tax expense .................       $ 7,622        $ 7,497        $ 7,127
                                          =======        =======        =======

Income tax expense related to realized  securities gains was $1,020,000 in 1998,
$426,000 in 1997 and $276,000 in 1996.

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

                                                   Years Ended December 31,
                                               ------------------------------ 
                                               1998         1997         1996
                                               ----         ----         ---- 
Federal tax at statutory rate ...........      35.0%        35.0%        35.0%
Tax exempt income .......................      (4.8)        (3.8)        (3.7)
Low income housing credits ..............      (0.4)        (0.4)        (0.4)
Goodwill amortization ...................       0.7           --           --
Other, net ..............................       0.3         (0.2)        (0.4)
                                               ----         ----         ---- 
Effective rate ..........................      30.8%        30.6%        30.5%
                                               ====         ====         ==== 


--------------------------------------------------------------------------------
                                                                              45
<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   ------------------------------------------

Deductible temporary  differences and taxable temporary differences gave rise to
a net  deferred  tax asset  for  Omega as of  December  31,  1998 and 1997.  The
components  giving rise to the net  deferred  tax asset are  detailed  below (in
thousands):


                                                              December 31,
                                                           1998           1997
                                                         -------        -------
Deferred Tax Assets
  Loan loss reserve ..............................       $ 4,120        $ 4,121
  Deferred compensation ..........................           659            622
  Employee benefits ..............................           429            414
  Interest on non-accrual loans ..................           215            109
  Other ..........................................             3              3
                                                         -------        -------
    Total ........................................         5,426          5,269

Deferred Tax Liabilities
  Depreciation ...................................          (309)          (349)
  Unrealized net gains on securities .............        (2,746)        (2,679)
  Intangibles ....................................            --           (543)
  Auto leases (net) ..............................          (575)          (520)
  Other ..........................................          (490)          (299)
                                                         -------        -------
    Total ........................................        (4,120)        (4,390)

Net deferred tax asset                                   -------        -------
  included in other assets .......................       $ 1,306        $   879
                                                         =======        ======= 

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


12.  EMPLOYEE BENEFIT PLANS

Omega Stock Compensation Plans

Omega has four stock-based compensation plans, the Employee Stock Purchase Plan,
the Stock Option Plan (1986) (the "1986 Plan"),  the 1996 Employee  Stock Option
Plan (the "1996 Plan") and the Non-Employee Director Stock Option Plan. The 1996
Plan  replaced the 1986 Plan  pursuant to which no options were  issuable  after
1996.  Omega  accounts  for these plans under APB Opinion No. 25, under which no
compensation  cost has been recognized.  Had  compensation  cost for these plans
been  determined  consistent  with the fair value  method  under  SFAS No.  123,
Omega's  net  income  and  earnings  per share  would  have been  reduced to the
following pro forma amounts:

<TABLE>
<CAPTION>
                                                           1998          1997         1996
                                                        --------      --------      --------
<S>                                                     <C>           <C>           <C>     
    Net income ....................  As reported .....  $ 17,092      $ 16,968      $ 16,227
                                     Pro forma            16,350        16,336        15,732

    Basic earnings per share ......  As reported .....  $   1.87      $   1.85      $   1.75
                                     Pro forma              1.79          1.78          1.70

    Diluted earnings per share ....  As reported .....  $   1.79      $   1.77      $   1.69
                                     Pro forma              1.71          1.70          1.64
</TABLE>

The SFAS No. 123 method of  accounting  has not been applied to options  granted
prior to January 1, 1995.  Therefore,  the resulting pro forma compensation cost
may not be  representative  of that to be  expected in future  years.  


--------------------------------------------------------------------------------
46
<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   ------------------------------------------

The above computations were derived using the Black-Scholes option pricing model
with the following  weighted  average  assumptions  used for options  granted in
1998, 1997 and 1996:

<TABLE>
<CAPTION>
Options Granted in 1998                Employee                    Employee                 Director
                                  Stock Purchase Plan      Stock Option Plan (1996)     Stock Option Plan
                                  -------------------      ------------------------     -----------------
<S>                                     <C>                      <C>                        <C>    
Expected life of options                1 year                   6 years                    6 years
Risk-free interest rate                  4.52%                     4.62%                      4.62%
Expected volatility                     27.41                      17.54                     17.54
Expected dividend yield                  2.59                       2.59                      2.59

<CAPTION>
Options Granted in 1997                Employee                    Employee                 Director
                                  Stock Purchase Plan      Stock Option Plan (1986)     Stock Option Plan
                                  -------------------      ------------------------     -----------------
<S>                                   <C>                       <C>                        <C>       
Expected life of options              .95 years                 5.77 years                 5.77 years
Risk-free interest rate                  5.53%                     5.75%                      5.75%
Expected volatility                     11.06                      19.46                     19.46
Expected dividend yield                  2.73                       2.73                      2.73

<CAPTION>
Options Granted in 1996                Employee                    Employee                 Director
                                  Stock Purchase Plan      Stock Option Plan (1986)     Stock Option Plan
                                  -------------------      ------------------------     -----------------
<S>                                   <C>                       <C>                        <C>       
Expected life of options              1.75 years                5.77 years                 5.77 years
Risk-free interest rate                  5.87%                     6.25%                      6.25%
Expected volatility                     12.57                      20.98                     20.98
Expected dividend yield                  2.80                       2.80                      2.80
</TABLE>

The Employee Stock Purchase Plan ("ESPP") is  administered  by the  Compensation
Committee ("Committee") of the Omega Board of Directors ("Board"), consisting of
members who are not eligible to receive options under the ESPP. The Committee is
authorized to grant  options to purchase  common stock of Omega to all employees
of Omega and its subsidiaries who meet certain service requirements.  All shares
granted under the ESPP are immediately  vested. For 27 months following the date
of the grant,  options are  exercisable  at the lesser of 90% of the fair market
value of the shares on the date of grant or 90% of the fair market  value on the
date of exercise.  After 27 months,  the options are  exercisable  at 90% of the
fair market value on the exercise  date.  Outstanding  options are  scheduled to
expire through  December 31, 2003.  The aggregate  number of shares which may be
issued upon the exercise of options  under this plan is 1,125,000  shares.  ESPP
options  outstanding at December 31, 1998 have current  exercise  prices between
$21.00  and  $30.15,  with a  weighted  average  exercise  price of $27.06 and a
weighted average remaining  contractual life of 4.28 years. All of these options
are exercisable.

The 1986 Plan and the 1996 Plan  (collectively,  the "SOPs") are administered by
the Committee, whose members are not eligible to receive options under the SOPs.
The Committee  determines,  among other things, which officers and key employees
will receive  options,  the number of shares to be subject to each  option,  the
option price and the duration of the option.  Options vest over one year and are
exercisable  at the fair  market  value of the  shares at date of  grant.  These
options are scheduled to expire through January 1, 2008. The aggregate number of
shares which may be issued upon the  exercise of options  under the 1996 Plan is
1,500,000  shares.  The SOPs  options  outstanding  at  December  31,  1998 have
exercise  prices between  $10.00 and $33.50,  with a weighted  average  exercise
price of $20.63 and a weighted average remaining contractual life of 6.41 years.
305,404 of these options are exercisable;  their weighted average exercise price
is $17.52.

The  Non-Employee  Director  Stock Option Plan ("DSOP") is  administered  by the
Board.  Options are  granted  automatically  on May 1 each year to  non-employee
directors of Omega.  Options vest over one year and are  exercisable at the fair
market value of the shares at the date of grant.  These options are scheduled to
expire through May 1, 2008.  The aggregate  number of shares which may be issued
upon the exercise of options under this plan is 30,000. DSOP options outstanding
at December 31, 1998 have  exercise  prices  between  $16.33 and $38.13,  with a
weighted  average  exercise  price of $25.87  and a weighted  average  remaining
contractual life of 7.57 years.  8,400 of these options are  exercisable;  their
weighted  average  exercise price is $20.77.  

--------------------------------------------------------------------------------
                                                                              47
<PAGE>


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   ------------------------------------------

     A summary of the status of Omega's three stock-based  compensation plans as
of December  31,  1998,  1997 and 1996,  and changes  during the years ending on
those dates is presented below:

<TABLE>
<CAPTION>
                                                               1998                        1997                       1996          
                                                    -------------------------   -------------------------  -------------------------
Employee Stock Purchase Plan                                 Weighted-Average            Weighted-Average           Weighted-Average
                                                    Shares    Exercise Price    Shares    Exercise Price   Shares    Exercise Price 
                                                    ------   ----------------   ------   ----------------  ------   ----------------
<S>                                                 <C>          <C>           <C>          <C>            <C>            <C>     
Outstanding at beginning of year ...............     169,175     $  25.28       187,123     $  19.17        180,359       $  16.83
Granted ........................................      86,929        27.23        86,603        30.15         84,531          21.00
Exercised ......................................     (68,637)       22.91      (103,414)       18.33        (69,996)         15.49
Forfeited ......................................      (3,287)       25.10        (1,137)       22.37         (7,771)         19.09
                                                    --------                   --------                    --------    
Outstanding at end of year .....................     184,180        27.01       169,175        25.28        187,123          19.17
                                                    ========                   ========                    ========    
                                                                                                           
Options exercisable at year-end ................     184,180                    169,175                     187,123    
Weighted-average fair value of                                                                                         
     options granted during the year ...........    $   7.48                   $   4.18                    $   3.54
                                                                                                         
<CAPTION>
                                                               1998                        1997                       1996          
                                                    -------------------------   -------------------------  -------------------------
Employee Stock Option Plan                                   Weighted-Average            Weighted-Average           Weighted-Average
                                                    Shares    Exercise Price    Shares    Exercise Price   Shares    Exercise Price 
                                                    ------   ----------------   ------   ----------------  ------   ----------------
<S>                                                 <C>          <C>           <C>          <C>            <C>            <C>     
Outstanding at beginning of year ...............     321,897     $  17.33      283,090      $  15.45        268,302       $  13.15
Granted ........................................      73,952        33.50       67,902         23.33         70,800          21.00
Exercised ......................................     (16,493)       13.87      (29,095)        13.03        (56,012)         11.43
Forfeited ......................................          --           --           --            --             --             --
                                                    --------                   --------                    --------    
Outstanding at end of year .....................     379,356        20.63      321,897         17.33        283,090          15.45
                                                    ========                   ========                    ========    
                                                                                                          
Options exercisable at year-end ................     305,404                   253,995                      212,297    
Weighted-average fair value of                                                                                         
     options granted during the year ...........    $   6.35                   $  5.13                     $   5.03
                                                                                                          
<CAPTION>                                                                                                
                                                               1998                        1997                       1996          
                                                    -------------------------   -------------------------  -------------------------
Director Stock Option Plan                                   Weighted-Average            Weighted-Average           Weighted-Average
                                                    Shares    Exercise Price    Shares    Exercise Price   Shares    Exercise Price 
                                                    ------   ----------------   ------   ----------------  ------   ----------------
<S>                                                 <C>          <C>           <C>          <C>            <C>            <C>     
Outstanding at beginning of year ...............      10,800     $  20.78        10,800     $  18.28          7,800       $  16.73
Granted ........................................       3,500        38.13         2,700        28.28          3,600          21.33
Exercised ......................................      (2,400)       20.77        (2,700)       18.28           (300)         16.33
Forfeited ......................................          --        --               --        --              (300)         17.17
                                                    --------                   --------                    --------    
Outstanding at end of year .....................      11,900        25.87        10,800        20.78         10,800          18.28
                                                    ========                   ========                    ========    
                                                                                                           
Options exercisable at year-end ................       8,400                      8,100                       7,200    
Weighted-average fair value of                                                                                         
     options granted during the year ...........    $   7.15                    $  5.61                    $   5.15
</TABLE>                                           

Omega Employee Stock Ownership Plan

Omega has an Employee Stock Ownership Plan ("ESOP") for the benefit of employees
that meet certain age and service requirements. For the years ended December 31,
1998,  1997 and  1996,  expenses  incurred  under  this  plan  were  $1,521,000,
$1,623,000  and  $2,173,000,  respectively.  The majority of the funds  obtained
through  these  contributions  were used to  purchase  Omega  stock or meet debt
service on the ESOP debt (see comment  below);  in 1998,  24,392 shares of Omega
common  stock  were  acquired  at a cost of  $770,000,  and 17,700  shares  were
contributed  directly to the ESOP from Omega  treasury (cost basis of $614,000),
and $117,000 was applied to debt service. In 1997, 32,049 shares of Omega common
stock were acquired at a cost of  $944,000,and  17,192  shares were  contributed
directly to the ESOP from Omega treasury (cost basis of $596,000),  and $125,000
was applied to debt service.  At December 31, 1998 the ESOP holds 467,783 shares
of Omega  common  stock and  219,781  shares  of  preferred  stock.  The ESOP is
administered by a Board of Trustees and an Administrative Committee appointed by
the Board. All of the Trustees are officers, employees, or directors of Omega.

On July 1, 1990, the ESOP entered into a $5,000,000  leveraged  transaction  for
the purpose of acquiring 219,781 shares of convertible  preferred stock from the
Corporation  for $22.75 per share.  The original term of the loan was for twenty
years and  carried a fixed  interest  rate of  10.65%  for the first ten  years.
Thereafter,  the ESOP had the option to take a fixed  rate or  various  variable
rate options for the remaining  term of the loan. On October 1, 1998,  this loan
was refinanced at a fixed rate of 7.00% through  October 1, 2005.  After October
1, 2005, to and including the date this loan is


--------------------------------------------------------------------------------
48
<PAGE>


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   ------------------------------------------

paid in full (maturity date is July 1, 2010),  the principal  balance shall bear
interest  annually at the  five-year  Treasury  rate at October 1, 2005 plus 250
basis  points.  The loan is  collateralized  by a mortgage on the  Corporation's
administration center and guarantee.

In order to meet the future  annual debt  service of  $489,000,  which  includes
principal and  interest,  the ESOP will receive  $396,000 in dividends  from the
preferred  stock and the remainder in  contributions  from the  Corporation.  In
1998, the debt service required $512,000, of which $315,000 represented interest
expense  incurred by the ESOP. In 1997, the debt service required  $520,000,  of
which $342,000  represented  interest expense incurred by the ESOP.  Outstanding
ESOP debt as of December 31, 1998 was $3,837,000. Scheduled principal repayments
on the ESOP debt are as follows:

                           1999 .....................    $    226,000
                           2000 .....................         242,000
                           2001 .....................         259,000
                           2002 .....................         278,000
                           2003 .....................         298,000
                           Later years ..............       2,534,000

Defined Contribution Plan

Omega maintains a defined  contribution plan for eligible  employees as defined.
Contributions to the plan totaled $136,000,  $142,000 and $146,000 for the years
ended December 31, 1998, 1997 and 1996, respectively.

Executive Supplemental Income Plan

The Executive  Supplemental  Income benefit plan ("ESI") provides executive life
insurance and  supplemental  retirement  benefits for certain  officers of Omega
Bank. The present value of the supplemental retirement benefits to be paid under
the ESI program is being accrued over the estimated  remaining service period of
the officers  designated to receive these  benefits.  At December 31, 1998, five
current  or  former  officers  were  designated  to be paid  these  supplemental
retirement  benefits.  The  liability  for  these  future  ESI  obligations  was
$1,299,000 and $1,190,000 at December 31, 1998 and 1997,  respectively.  For the
years ended December 31, 1998, 1997 and 1996,  $131,000,  $133,000 and $133,000,
respectively, were charged to operations in connection with this program.

Defined Benefit Plan Termination

During 1994,  management developed a plan to terminate the Corporation's defined
benefit  plan and settle  the vested  benefits  of the plan's  participants.  In
anticipation of this termination,  Omega froze the accrual of benefits under the
defined  benefit  plan in 1994 and  settled  the plan's  obligations  to retired
employees receiving benefits in 1995. In 1996, Omega settled the vested benefits
of active  employees and  terminated  the plan.  The  termination  resulted in a
reversion to the  Corporation of $391,000,  of which $107,000 was contributed to
the ESOP.

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

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

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

The  Corporation  had  outstanding  loan  origination   commitments  aggregating
$38,886,000  and  $24,686,000  at December 31, 1998 and 1997,  respectively.  In
addition, the Corporation had $89,765,000 and $93,895,000  outstanding in unused
lines of credit  commitments  extended to its customers at December 31, 1998 and
1997, respectively.

There were no financial  guarantees or options outstanding at December 31, 1998.
Commitments  to extend  credit are  agreements  to lend to a customer as long as
there is no violation of any condition established in the contract.  Commitments
generally  have fixed  expiration  dates or other  termination  clauses  and may
require  payment of a fee.  Since a portion of the  commitments  are expected to
expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash  requirements.  The Corporation  evaluates each customer's
creditworthiness  on a case-by-case  basis. The amount of collateral obtained by
the  Corporation  upon  extension  of  credit  is based on  management's  credit
evaluation of the counterparty.


--------------------------------------------------------------------------------
                                                                              49
<PAGE>


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   ------------------------------------------

Standby  letters  of credit  are  instruments  issued by the  Corporation  which
guarantee  the  beneficiary  payment  by the bank in the event of default by the
Corporation's  customer in the non-performance of an obligation or service. Most
standby  letters of credit are  extended for one year  periods.  The credit risk
involved in issuing  letters of credit is essentially  the same as that involved
in extending loan  facilities to customers.  The  Corporation  holds  collateral
supporting  those  commitments  for which  collateral  is deemed  necessary.  At
December 31, 1998 and 1997,  standby  letters of credit  issued and  outstanding
amounted to $18,289,000 and $14,827,000, respectively.

Omega has entered into interest rate  contracts to help manage its interest rate
risk associated with its commercial loans whose rates float with the prime rate.
These contracts include interest rate swaps and floors.

Under  interest  rate swaps,  Omega agrees with other  parties to  exchange,  at
specified  intervals,  the  difference  between  fixed  rate and  floating  rate
interest amounts calculated by reference to an agreed notional principal amount.
At December 31, 1998 and 1997, the Corporation  had the following  interest rate
swap agreements in place:

                                                        Notional Amount
                                                         (in thousands)
                                                 ----------------------------
               Maturity        Fixed Rate           1998                1997
               --------        ----------        --------            --------
               2/26/99            8.14%          $ 10,000            $ 10,000
               3/1/99             8.47             10,000              10,000
               3/4/99             8.47             10,000              10,000

On these  agreements the Corporation  pays the prime rate and receives the fixed
rate.

Under  interest rate floors,  Omega pays a premium to a third party for interest
rate protection on an agreed notional  principal amount, to offset the effect of
interest rates falling below the floor level during a specified  period of time.
At December 31, 1998, Omega had no interest rate floor  agreements.  On December
31, 1997, the  Corporation  had the following  interest rate floor  agreement in
place:

                                                       (in thousands)
                                              ------------------------------
     Maturity     Floor Rate     Based on     Notional Amount   Premium Paid
     --------     ----------     --------     ---------------   ------------
     6/11/98         8.25%        Prime          $ 10,000           $  27

Under  this  agreement,  if the prime  rate fell  below the floor rate of 8.25%,
Omega would still have earned 8.25% on the notional balance of $10,000,000.

The  notional  amounts of  interest  rate  contracts  do not  represent  amounts
exchanged  by the  parties  and,  thus,  are not a measure of  Omega's  exposure
through  this use of  derivatives.  The  amounts  exchanged  are  determined  by
reference to the notional amounts.  Omega is exposed to credit-related losses in
the event of nonperformance by counterparties to financial instruments, but does
not expect any  counterparties  to fail to meet their  obligations,  given their
high  credit  ratings.  The fair  value of these  interest  rate swap  contracts
reflects the estimated  amounts that Omega would receive or pay to terminate the
contracts at the reporting date and are based upon dealer quotes (See Note 2).

As of  December  31,  1998,  there  were  no  concentrations  of  credit  to any
particular  industry  equaling 10% or more of total outstanding  loans.  Omega's
business  activities are  geographically  concentrated in central  Pennsylvania,
within Centre, Blair, Huntingdon, Mifflin, Juniata, Clinton, Montour and Bedford
counties. Omega has a diversified loan portfolio; however, a substantial portion
of its debtors' ability to honor their obligations is dependent upon the economy
in central Pennsylvania.


14.  COMMITMENTS AND CONTINGENT LIABILITIES

In 1998, the Corporation renewed a five-year agreement to obtain data processing
services from an outside service bureau.  The agreement provides for termination
penalties  if it is canceled  prior to the end of the  commitment  period by the
Corporation.

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


--------------------------------------------------------------------------------
50
<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   ------------------------------------------

15.  SHAREHOLDERS' EQUITY

Five million  shares of preferred  stock with a par value of $5.00 per share are
authorized for issuance. The Board has the ability to fix the voting,  dividend,
redemption and other rights of the preferred  stock,  which can be issued in one
or more series.

There are  219,781  shares of Class A  cumulative  convertible  preferred  stock
issued  to  Omega's  Employee  Stock  Ownership  Plan  (ESOP)  for  a  total  of
$5,000,000.  The preferred stock is convertible into Omega's common stock at the
current rate of 1.575 common shares for one preferred  share in certain  events.
The  preferred  stock  is  restricted  to the ESOP  and can be  redeemed  by the
Corporation  at any time with a  decreasing  premium  over the first ten  years.
Dividends on the preferred  stock are fixed at $1.80 per share per year, and are
required  to be paid prior to any  dividend  payments on the common  stock.  The
preferred  stock has  preference  in  liquidation  over the common  stock in the
amount of $22.75 per share, plus all dividend  arrearages,  prior to payments to
common shareholders. Full voting rights are held by the preferred stock owner.


16.  COMPREHENSIVE INCOME

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

<TABLE>
<CAPTION>
                                                                                          Year ended December 31, 1998
                                                                                  -----------------------------------------------
                                                                                   Before          Tax (Expense)
                                                                                    Tax                 or               Net-of-Tax
                                                                                   Amount             Benefit              Amount
                                                                                  -------             -------             -------
<S>                                                                               <C>                 <C>                 <C>    
Unrealized gains on available for sale securities:
Unrealized holding gains arising during the period .....................          $ 3,122             $(1,093)            $ 2,029
Less reclassification adjustment for
    gains included in net income .......................................           (3,560)              1,246              (2,314)
                                                                                  -------             -------             -------
Other comprehensive income (loss) ......................................          $  (438)            $   153             $  (285)
                                                                                  =======             =======             =======

<CAPTION>
                                                                                          Year ended December 31, 1997
                                                                                  -----------------------------------------------
                                                                                   Before          Tax (Expense)
                                                                                    Tax                 or               Net-of-Tax
                                                                                   Amount             Benefit              Amount
                                                                                  -------             -------             -------
<S>                                                                               <C>                 <C>                 <C>    
Unrealized gains on available for sale securities:
Unrealized holding gains arising during the period .....................          $ 4,894             $(1,713)            $ 3,181
Less reclassification adjustment for
    gains included in net income .......................................           (1,216)                426                (790)
                                                                                  -------             -------             -------
Other comprehensive income (loss) ......................................          $ 3,678             $(1,287)            $ 2,391
                                                                                  =======             =======             =======

<CAPTION>
                                                                                          Year ended December 31, 1996
                                                                                  -----------------------------------------------
                                                                                   Before          Tax (Expense)
                                                                                    Tax                 or               Net-of-Tax
                                                                                   Amount             Benefit              Amount
                                                                                  -------             -------             -------
<S>                                                                               <C>                 <C>                 <C>    
Unrealized gains on available for sale securities:
Unrealized holding gains arising during the period .....................          $ 1,400             $  (490)            $   910
Less reclassification adjustment for
    gains included in net income .......................................             (788)                276                (512)
                                                                                  -------             -------             -------
Other comprehensive income (loss) ......................................          $   612             $  (214)            $   398
                                                                                  =======             =======             =======
</TABLE>

17.  RELATED-PARTY TRANSACTIONS

Omega's banks have granted loans to certain  officers and directors of Omega and
its subsidiaries and to their associates. These loans were made on substantially
the same terms, including interest rates and collateral,  as those prevailing at
the time for comparable  transactions with unrelated persons, and in the opinion
of management, do not involve more than normal risk of collection. The aggregate
dollar amount of these loans was  $13,873,000,  $13,020,000  and  $13,949,000 at
December 31, 1998, 1997 and 1996,  respectively.  During 1998, $4,502,000 of new
loans were made and repayments totaled $3,444,000. None of these loans were past
due, in non-accrual status or restructured at December 31, 1998.


--------------------------------------------------------------------------------
                                                                              51
<PAGE>


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   ------------------------------------------

18.  OMEGA FINANCIAL CORPORATION (PARENT COMPANY ONLY)

Financial information (in thousands):

                            CONDENSED BALANCE SHEETS
                                  (Unaudited)

                                                               December 31,
                                                         -----------------------
                                                           1998           1997
                                                         --------       --------

ASSETS:
  Cash ...........................................       $  7,042       $  4,660
  Investment in bank subsidiaries ................        132,434        125,062
  Investment in non-bank subsidiaries ............         13,460         10,664
  Premises and equipment, net ....................          7,053          7,283
  Other assets ...................................          1,225          1,400
                                                         --------       --------
TOTAL ASSETS .....................................       $161,214       $149,069
                                                         ========       ========

LIABILITIES:
  Dividends payable ..............................       $  1,976       $  1,596
  Accounts payable and other liabilities .........          1,421          1,007
  ESOP debt ......................................          3,837          4,034
                                                         --------       --------
TOTAL LIABILITIES ................................          7,234          6,637
SHAREHOLDERS' EQUITY .............................        153,980        142,432
                                                         --------       --------
TOTAL LIABILITIES
AND SHAREHOLDERS' EQUITY .........................       $161,214       $149,069
                                                         ========       ========

                         CONDENSED STATEMENTS OF INCOME
                                  (Unaudited)

                                                    Years ended December 31,
                                               --------------------------------
                                                 1998        1997        1996
                                               --------    --------    --------
INCOME:
  Dividends from:
    Bank subsidiaries .....................    $  7,739    $ 14,864    $  6,292
    Non-bank subsidiaries .................          --          --          --
  Management fees
from subsidiaries .........................      10,038       9,250       8,372
                                               --------    --------    --------
TOTAL INCOME ..............................      17,777      24,114      14,664
EXPENSE:
  Interest expense ........................           6           4           3
  Other ...................................      10,038       9,250       8,372
                                               --------    --------    --------
TOTAL EXPENSE .............................      10,044       9,254       8,375
                                               --------    --------    --------
INCOME BEFORE INCOME TAXES AND EQUITY
  IN UNDISTRIBUTED NET
INCOME OF SUBSIDIARIES ....................       7,733      14,860       6,289
Income tax expense
(benefit) .................................          93          33         (12)
                                               --------    --------    --------
                                                   ,640      14,827       6,301
Equity in undistributed
net income of subsidiaries ................       9,452       2,141       9,926
                                               --------    --------    --------
NET INCOME ................................    $ 17,092    $ 16,968    $ 16,227
                                               ========    ========    ========


--------------------------------------------------------------------------------
52
<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   ------------------------------------------

                                   CONDENSED
                            STATEMENTS OF CASH FLOWS
                                  (Unaudited)

<TABLE>
<CAPTION>
                                                              Years ended December 31,
                                                          --------------------------------
                                                            1998        1997        1996
                                                          --------    --------    --------
<S>                                                       <C>         <C>         <C>     
Cash flows from operating activities:
  Net income ..........................................   $ 17,092    $ 16,968    $ 16,227
  Adjustments to reconcile net income to net cash
    provided by operating activities:
  Depreciation and amortization .......................      1,040         926         741
  (Increase) decrease in tax receivable ...............         (9)        (80)        280
  Decrease (increase) in interest and other receivable         184         360        (671)
  Increase (decrease) in taxes payable ................        351        (246)        144
  Increase in accounts payable and accrued expenses ...        673         642         135
  Undistributed earnings of subsidiaries ..............    (10,453)     (2,291)     (9,926)
                                                          --------    --------    --------
    Total adjustments .................................     (8,214)       (689)     (9,297)
                                                          --------    --------    --------
Net cash provided by operating activities .............      8,878      16,279       6,930

Cash flows from investing activities:
  Capital expenditures ................................       (758)     (1,157)     (1,240)
                                                          --------    --------    --------
Net cash used in investing activities .................       (758)     (1,157)     (1,240)

Cash flows from financing activities:
  Dividends paid ......................................     (7,185)     (6,027)     (4,080)
  Net change in interest bearing liabilities ..........          5          38          34
  Change in unearned compensation .....................         --          --         800
  Tax benefit from preferred stock dividend
    and stock option activity .........................        332         414         213
  Issuance of common stock, net of retirement
    of common stock ...................................      1,815         616         791
  Issuance, acquisition and sale of treasury stock, net       (705)     (8,428)     (1,444)
                                                          --------    --------    --------
Net cash used in financing activities .................     (5,738)    (13,387)     (3,686)

                                                          --------    --------    --------
Net increase in cash and due from banks ...............   $  2,382    $  1,735    $  2,004
                                                          ========    ========    ========

Cash and due from banks at beginning of period ........   $  4,660    $  2,925    $    921
Cash and due from banks at end of period ..............      7,042       4,660       2,925
                                                          --------    --------    --------
Net increase in cash and due from banks ...............   $  2,382    $  1,735    $  2,004
                                                          ========    ========    ========


Income taxes paid .....................................   $  7,364    $  7,015    $  6,922
</TABLE>


REGULATORY MATTERS

Certain restrictions exist regarding the ability of Omega's banking subsidiaries
to transfer  funds to Omega in the form of cash  dividends,  loans and advances.
The approval of the  Comptroller of the Currency is required to pay dividends in
excess of earnings  retained in the current  year plus  retained net profits for
the preceding two years.  At December 31, 1998, the total  dividends which could
be paid to Omega without  permission  from the  Comptroller  of the Currency was
$31,123,000.

Under Federal Reserve restrictions,  the banking subsidiaries are limited to the
amount they may loan to their affiliates, including Omega. At December 31, 1998,
Omega's banks had an aggregate lending limit to affiliates of $21,422,000 and no
amount was outstanding with Omega.



--------------------------------------------------------------------------------
                                                                              53
<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   ------------------------------------------

19.  QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

The unaudited  quarterly  results of operations for the years ended December 31,
1998 and 1997 follow (in thousands,  except per share data).  All per share data
has been  restated  to give effect to the three for two stock split on April 30,
1997, and to reflect the adoption of SFAS No. 128, "Earnings per Share".

<TABLE>
<CAPTION>
                                                                      1998 Quarter ended      
                                         ---------------------------------------------------------------------------
                                         March 31              June 30             September 30          December 31
                                         --------              -------             ------------          -----------
<S>                                      <C>                   <C>                   <C>                   <C>    
Total interest income ..............     $18,695               $18,957               $18,857               $18,759
Net interest income ................      11,511                11,760                11,633                11,714
Provision for loan losses ..........         242                   243                   332                   243
Income before income taxes .........       5,894                 6,154                 6,266                 6,400
Applicable income taxes ............       1,784                 1,903                 1,893                 2,042
Net income .........................       4,110                 4,251                 4,373                 4,358
Basic earnings per share ...........     $   .45               $   .46               $   .48               $   .48
Diluted earnings per share .........         .43                   .44                   .46                   .46

<CAPTION>
                                                                       1997 Quarter ended
                                         ---------------------------------------------------------------------------
                                         March 31              June 30             September 30          December 31
                                         --------              -------             ------------          -----------
<S>                                      <C>                   <C>                   <C>                   <C>    
Total interest income ..............     $18,748               $19,208               $19,495               $19,547
Net interest income ................      11,454                11,794                11,844                12,029
Provision for loan losses ..........         258                   257                   258                   257
Income before income taxes .........       5,670                 6,313                 1,808                 1,968
Net income .........................       3,901                 4,361                 4,168                 4,538
Basic earnings per share ...........     $   .42               $   .47               $   .46               $   .50
Diluted earnings per share .........         .40                   .45                   .44                   .48
</TABLE>


20.  REGULATORY CAPITAL REQUIREMENT

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

Quantitative  measures  established  by  regulation to ensure  capital  adequacy
require the Corporation and bank  subsidiaries to each maintain  minimum amounts
and  ratios  (set  forth in the table  below)  of total  and Tier I capital  (as
defined in the  regulations) to  risk-weighted  assets (as defined),  and Tier I
capital (as defined) to average assets (as defined).  Management believes, as of
December  31,  1998 and  1997,  that  Omega and its bank  subsidiaries  meet all
capital adequacy requirements to which they are subject.

As of December  31,  1998,  the most  recent  notification  from the  regulatory
banking agencies categorized Omega and its bank subsidiaries as well capitalized
under the regulatory  framework for prompt corrective  action. To be categorized
as well capitalized  Omega and its bank subsidiaries must maintain minimum total
risk-based,  Tier I  risk-based  and Tier I leverage  ratios as set forth in the
table.  There  are no  conditions  or  events  since  these  notifications  that
management believes have changed the institutions' category.


--------------------------------------------------------------------------------
54
<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   ------------------------------------------

The  table  below  provides  a  comparison  of Omega  and its  significant  bank
subsidiaries'  risk-based  capital  ratios and  leverage  ratios to the  minimum
regulatory requirements for the periods indicated:

<TABLE>
<CAPTION>
                                                                                        Minimum Requirement       Minimum Regulatory
                                                                                            For Capital           Requirements to be
                                                                      Actual             Adequacy Purposes        "Well Capitalized"
                                                               -------------------      -------------------      -------------------
                                                               Amount        Ratio      Amount        Ratio      Amount        Ratio
                                                               ------        -----      ------        -----      ------        -----
<S>                                                           <C>             <C>      <C>             <C>     <C>             <C>  
Omega Financial Corporation

 As of December 31, 1998:
     Total Capital (to Risk Weighted Assets) .............    $158,160        22.1%    $ 57,334        8.0%    $ 71,668        10.0%
     Tier I Capital (to Risk Weighted Assets) ............     149,162        20.8       28,667        4.0       43,001         6.0
     Tier I Capital (to Average Assets) ..................     149,162        14.5       41,067        4.0       51,334         5.0

 As of December 31, 1997:
     Total Capital (to Risk Weighted Assets) .............    $143,673        21.1%    $ 54,418        8.0%    $ 68,023        10.0%
     Tier I Capital (to Risk Weighted Assets) ............     135,127        19.9       27,209        4.0       40,814         6.0
     Tier I Capital (to Average Assets) ..................     135,127        13.3       40,584        4.0       50,730         5.0

 Omega Bank
 As of December 31, 1998:
     Total Capital (to Risk Weighted Assets) .............    $ 80,438        19.9%    $ 32,333        8.0%    $ 40,416        10.0%
     Tier I Capital (to Risk Weighted Assets) ............      75,385        18.7       16,166        4.0       24,250         6.0
     Tier I Capital (to Average Assets) ..................      75,385        13.2       22,798        4.0       28,498         5.0

 As of December 31, 1997:
     Total Capital (to Risk Weighted Assets) .............    $ 74,430        19.5%    $ 30,557        8.0%    $ 38,196        10.0%
     Tier I Capital (to Risk Weighted Assets) ............      69,648        18.2       15,278        4.0       22,918         6.0
     Tier I Capital (to Average Assets) ..................      69,648        12.3       22,621        4.0       28,276         5.0


 Hollidaysburg Trust Company
 As of December 31, 1998:
     Total Capital (to Risk Weighted Assets) .............    $ 34,168        18.9%    $ 14,478        8.0%    $ 18,098        10.0%
     Tier I Capital (to Risk Weighted Assets) ............      31,893        17.6        7,239        4.0       10,859         6.0
     Tier I Capital (to Average Assets) ..................      31,893        12.5       10,206        4.0       12,757         5.0

 As of December 31, 1997:
     Total Capital (to Risk Weighted Assets) .............    $ 31,059        18.3%    $ 13,604        8.0%    $ 17,005        10.0%
     Tier I Capital (to Risk Weighted Assets) ............      28,920        17.0        6,802        4.0       10,203         6.0
     Tier I Capital (to Average Assets) ..................      28,920        11.7        9,849        4.0       12,311         5.0

 Penn Central National Bank
 As of December 31, 1998:
     Total Capital (to Risk Weighted Assets) .............    $ 25,169        22.8%    $  8,837        8.0%    $ 11,046        10.0%
     Tier I Capital (to Risk Weighted Assets) ............      23,764        21.5        4,418        4.0        6,628         6.0
     Tier I Capital (to Average Assets) ..................      23,764        13.0        7,297        4.0        9,121         5.0

 As of December 31, 1997:
     Total Capital (to Risk Weighted Assets) .............    $ 24,460        22.4%    $  8,754        8.0%    $ 10,943        10.0%
     Tier I Capital (to Risk Weighted Assets) ............      23,070        21.1        4,377        4.0        6,566         6.0
     Tier I Capital (to Average Assets) ..................      23,070        12.3        7,474        4.0        9,343         5.0
</TABLE>


--------------------------------------------------------------------------------
                                                                              55
<PAGE>


                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
                    ----------------------------------------

To the Shareholders of Omega Financial Corporation:

We have audited the accompanying  consolidated balance sheets of Omega Financial
Corporation (a  Pennsylvania  corporation)  and  subsidiaries as of December 31,
1998 and 1997, and the related consolidated statements of income,  shareholders'
equity and cash flows for each of the three years in the period  ended  December
31, 1998. These financial statements are the responsibility of the Corporation's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements based on our audits.

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

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all material  respects,  the financial  position of Omega  Financial
Corporation  and  subsidiaries as of December 31, 1998 and 1997, and the results
of their  operations  and their  cash  flows for each of the three  years in the
period ended December 31, 1998 in conformity with generally accepted  accounting
principles.

/s/ Arthur Andersen LLP

Lancaster, Pa.
January 22, 1999


--------------------------------------------------------------------------------
56