UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

FORM 10-Q

For the quarterly period ended March 31, 2005

OR

For the transition period from _____to _____

Commission File Number: 0-13599

OMEGA FINANCIAL CORPORATION

366 Walker Drive, State College, PA 16801

(814) 231-7680

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

The number of shares outstanding of each of the issuer’s classes of common stock as of May 5, 2005:
12,615,383 shares of Common Stock, $5.00 par value

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PART I. Financial Information

Item 1. Financial Statements

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

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

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OMEGA FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

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

OMEGA FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

THREE MONTHS ENDED MARCH 31, 2005 AND 2004

A.	Basis of Presentation:

The accompanying unaudited financial statements have been prepared in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments, including normal recurring accruals, considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2005 are not necessarily indicative of the results that may be experienced for the year ending December 31, 2005 or any other interim period. For further information, refer to the Consolidated Financial Statements and Footnotes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2004.

Summary of Significant Accounting Policies (to be read in conjunction with Summary of Significant Accounting Policies included in the Footnotes of the Company’s Annual Report on Form 10-K for the year ended December 31, 2004):

Allowance for loan losses

For financial reporting purposes, the provision for loan losses charged to current operating income is based on management’s estimates, and actual losses may vary from estimates. These estimates are reviewed and adjusted at least quarterly and are reported in earnings in the periods in which they become known. In determining the adequacy of the allowance for loan losses, management makes specific allocations to watch list loans and pools of non-watch list loans for various credit risk factors, including the composition and growth of the loan portfolio, overall portfolio quality, levels of delinquent loans, specific problem loans, prior loan loss experience and current economic conditions that may affect a borrower’s ability to pay. The loan loss provision for federal income tax purposes is based on current income tax regulations, which allow for deductions equal to net charge-offs. In the first quarter of 2005, management refined its policy to expand the historical loan loss experience data to a five-year period (formerly a one-year history was used). Management believes that the five-year horizon better reflects the inherent risk in the loan portfolio.

Stock-based compensation

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

In December 2004, the FASB revised Statement No. 123. In April 2005, the SEC announced that it would require registrants that are not small business issuers to adopt Statement 123R no later than the beginning of the first fiscal year beginning after June 15, 2005. Omega will adopt Statement 123R on January 1, 2006. Management has not yet determined the method of adoption it will use and therefore, cannot project the impact of adoption at this time.

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The fair value was estimated at the date of grant using a Black-Scholes option-pricing model utilizing various assumptions. Compensation expense, net of related tax, is included in the pro forma net income reported below (in thousands, except per share data).

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

The accompanying Consolidated Financial Statements include Omega Financial Corporation (Omega), a bank holding company and the combined results of its wholly-owned banking and non-banking subsidiaries.

B.	Commitments, Contingent Liabilities and Guarantees:

In the ordinary course of business, Omega makes commitments to extend credit to its customers through letters of credit and lines of credit.

Standby letters of credit are instruments issued by the Corporation’s bank subsidiary that guarantee the beneficiary payment by the bank in the event of default by the bank’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 bank holds collateral supporting those commitments for which collateral is deemed necessary. At March 31, 2005, standby letters of credit issued and outstanding amounted to $25,955,000 as compared to $24,064,000 on December 31, 2004. The fair market value of the standby letters of credit at March 31, 2005 and December 31, 2004 was $139,000 and $138,000, respectively. The fair market value of standby letters of credit is recorded as a liability in accordance with FIN 45.

At March 31, 2005, the bank had $249,245,000 outstanding in loan commitments and other unused lines of credit extended to its customers. Of this amount, $169,608,000, or 68.0%, were commercial commitments. The remaining amounts of $79,637,000 were commitments to consumers for mortgage and home equity loans and personal lines of credit.

Omega’s Employee Stock Ownership Plan (ESOP) incurred debt in 1990 of $5,000,000, which is collateralized by a mortgage on the Corporation’s administrative center and the Corporation’s guarantee. As of March 31, 2005, the balance of the ESOP debt was $2,107,000 as compared to $2,192,000 at December 31, 2004.

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C.	Investment Securities:
	The following schedule details characteristics of the investment portfolio as of March 31, 2005 and December 31, 2004 (in thousands).

In accordance with the disclosure requirements of EITF 03-01, the following table shows gross unrealized losses and fair value, aggregated by category and length of time that individual investment securities have been in a continuous unrealized loss position, at March 31, 2005 (in thousands):

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The unrealized losses noted above are considered to be temporary impairments, as the majority of the investments are debt securities whose decline in value is due primarily to interest rate fluctuations. As a result, management believes the payment of contractual cash flows, including principal repayment, is not at risk. Management has the intent and ability to hold these investments until market recovery or maturity. Debt securities with unrealized losses for a period of less than 12 months includes 55 investments in U.S. Government agency debt securities, 24 investments in mortgage-backed securities, six investments in corporate securities and 51 investments in obligations of state and municipal subdivisions. Debt securities with unrealized losses for a period of 12 months or longer includes 28 investments in U.S. Government agency debt securities, 10 investments in corporate securities, five investments in obligations of state and municipal subdivisions and one investment in mortgage-backed securities. Debt securities included in the above table have maturity or pre-refund dates ranging from April 2005 to September 2022. The unrealized loss position for each security ranges from .02% to 7.27% of the securities’ amortized cost as of March 31, 2005. Unrealized losses for a period of less than 12 months on common stock are driven by one equity investment.

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

D.	Income Taxes:
	The effective tax rate for the three months ended March 31, 2005 was 23.7%, compared to the same period in 2004 when the effective tax rate was 21.6%. For the year ended December 31, 2004, the effective tax rate was 23.8%.
E.	Long term Debt:
	On October 1, 2004, Omega acquired Sun Bancorp, Inc. (“Sun”). In the first quarter of 2005, Omega extinguished indebtedness to the Federal Home Loan Bank, completing its systematic program of reducing the leverage of Sun’s balance sheet acquired in the acquisition. The final extinguishment resulted in a gain of $1,043,000. Following is a schedule showing the change in composition of long-term debt since December 31, 2004 (in thousands of dollars).

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F.	Comprehensive Income:
	Components of other comprehensive income consist of the following (in thousands):

G.	Earnings Per Share Data:
	Basic earnings per share are computed by dividing income available to common stockholders by the weighted average number of shares outstanding for the period. On a diluted basis, both earnings and shares outstanding are adjusted to assume the conversion of all potentially dilutive securities into common stock.

Computations of Earnings per Share
(In thousands, except per share amounts)
(Unaudited)

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H.	Acquisition:
	On October 1, 2004, Omega completed its acquisition of Sun Bancorp, Inc. (“Sun”) for a total purchase price of $187,729,000. The following unaudited pro forma consolidated financial information presents the combined results of operations of Omega and Sun as if the acquisition had occurred as of January 1, 2004.

The pro forma results include amortization of fair value adjustments on loans, deposits and debt and amortization on newly created intangibles but exclude post-merger acquisition related charges and the effects of restructuring the balance sheet. The pro forma number of weighted average common shares outstanding includes adjustments for shares issued for the acquisition and the impact of additional dilutive securities and does not assume any incremental share repurchases. The pro forma results presented do not reflect all cost savings or revenue enhancements anticipated from the acquisition and are not necessarily indicative of what actually would have occurred if the acquisitions had been completed as of the beginning of 2004, nor are they necessarily indicative of future results.

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I.	Goodwill and Other Intangible Assets:
	As a result of the acquisition of Sun in the fourth quarter of 2004, Omega recorded preliminary estimates of fair values of assets acquired, including core deposit intangibles and goodwill of $14,211,000 and $156,959,000, respectively. In the first quarter of 2005, Omega revised its determination of the value of the core deposit intangible. This revised valuation was lower than originally estimated by $6,483,000 and reduced amortization costs for the first quarter of 2005 as compared to the fourth quarter of 2004 by $230,000. Accordingly, the value of goodwill was increased by $4,214,000 and the deferred tax asset acquired was increased by $2,269,000. The weighted average life of all finite-lived intangible assets is 10.23 years. The estimates included in the valuation of the core deposit intangible are generally consistent with the runoff experienced to date on the acquired deposits. A summary of intangible assets at March 31, 2005 and December 31, 2004 follows (in thousands):

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OMEGA FINANCIAL CORPORATION AND SUBSIDIARIES

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

Investment Considerations

	In analyzing whether to make, or to continue to make, an investment in Omega, investors should consider, among other factors, certain investment considerations more particularly described in “Item 1: Business — Investment Considerations” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2004. A copy of this report can be obtained by written request to David N. Thiel, Senior Vice President, Omega Financial Corporation, 366 Walker Drive, State College, Pennsylvania 16801 or through our website at OmegaFinancial.com.
	Forward Looking Statements
	The information in this Quarterly Report on Form 10-Q contains forward looking statements (as such term is defined in the Securities Exchange Act of 1934 and the regulations thereunder), including without limitation, statements as to the future loan and deposit volumes, the allowance and provision for possible loan losses, future interest rates and their effect on Omega’s financial condition or results of operations, the classification of Omega’s investment portfolio or as to trends or management’s beliefs, expectations or opinions and other statements other than historical facts. Such forward looking statements are subject to risks and uncertainties and may be affected by various factors which may cause actual results to differ materially from those in the forward looking statements. In addition to the factors discussed in this report, certain risks, uncertainties and other factors, including without limitation, risks arising from economic conditions and related uncertainties, changes in interest rates, federal and state regulation, competition and the adequacy of the allowance and provision for loan losses, are discussed in the Company’s 2004 Annual Report to Shareholders or in the Company’s Annual Report on Form 10-K for the year ended December 31, 2004. Copies of these reports may be obtained from Omega upon request and without charge (except for the exhibits thereto) as described above.

Application of Critical Accounting Policies

	The Corporation’s consolidated financial statements are prepared based upon the application of U.S. generally accepted accounting principles, the most significant of which are described in Note A. Certain of these policies require numerous estimates and economic assumptions, based upon information available as of the date of the financial statements. As such, over time, they may prove inaccurate or vary and may significantly affect the Corporation’s reported results and financial position for the period or in future periods. The accounting policy for establishing the allowance for loan losses has a greater reliance on the use of estimates, and as such has a greater possibility of producing results that could be different than originally reported. Changes in underlying factors, assumptions or estimates in the allowance for loan losses could have a material impact on the Corporation’s future financial condition and results of operations.
	The allowance for loan losses is maintained at a level believed adequate by management to absorb probable losses and related provision expense. The allowance for loan losses is maintained at a level believed adequate by management to absorb probable losses in the loan portfolio. Management’s determination of the adequacy of the allowance for loan losses is based upon an evaluation of individual credits in the loan portfolio, historical loan loss experience, current economic conditions, and other relevant factors. This determination is inherently subjective, as it requires material estimates including the amounts and timing of future cash flows expected to be received on impaired loans that may be susceptible to significant change. The allowance for loan losses related to loans considered to be impaired is generally evaluated based on the discounted cash flows using the impaired loan’s initial effective interest rate or the fair value of the collateral for certain collateral dependent loans.

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	Omega’s accounting policy for the determination of goodwill and other intangibles also has a significant reliance on the use of estimates. Goodwill represents the excess of the cost of an acquisition over the fair value of the net assets acquired. Other intangible assets represent purchased assets that also lack physical substance but can be separately distinguished from goodwill because of contractual or other legal rights or because the asset is capable of being sold or exchanged either on its own or in combination with a related contract, asset or liability. It is Omega’s policy that goodwill be tested at least annually for impairment. Management’s current analysis indicates that a 15.7% decline in market capitalization could have a material impact on the carrying value of goodwill.
	Intangible assets with finite lives include core deposits, customer relationships and trade names. Intangible assets are subject to impairment testing whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Core deposit, customer relationship and certain trade name intangibles are amortized over a period of time that represents their expected life using method of amortization that reflects the pattern of economic benefit. Management estimates that consecutive annual declines of more that 10% of the acquired customer base subsequent to March 31, 2005 could result in an impairment of the core deposit intangible and affect Omega’s operating results in future years.

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1.	Comparison of the Three Months Ended March 31, 2005 and 2004

Operations Overview

	In order to effectively discuss changes in operating results between the first quarter of 2004 and the first quarter of 2005, the effects of the Sun acquisition must be taken into consideration. The addition of the former Sun operation significantly impacted every element of Omega’s income statement. The merger was completed on October 1, 2004, and since that time, management has restructured the combined balance sheet in an effort to enhance future performance, revised its initial estimate of the value of the core deposit intangible and goodwill, begun execution of its plan to reduce redundant costs, opened two new branch offices, invested in technology to update delivery services and incurred integration costs to standardize the overall Omega operation.
	In addition to the comparison of operating results between the first quarter of 2004 and the first quarter of 2005, the following discussion will include a comparison between the first quarter of 2005 and the fourth quarter of 2004, the first quarter which included combined operations after the Sun merger. A summary of the results of the two periods follows (in thousands).

The first quarter’s income before income taxes increased $4,022,000 when compared to the same period in 2004. Income from credit activities increased by $5,010,000, from $10,090,000 in the first quarter of

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	2004 to $15,100,000 in the first quarter of 2005. Other income increased $4,748,000, or 127.0% while other expense increased by $5,736,000, or 62.1%.
	After the income tax provision (which increased by $1,049,000, or 105.9% compared to the same period in 2004) was deducted from earnings, net income was $2,973,000, or 82.5%, higher than the first quarter of 2004. The effective tax rate for the first quarter of 2005 was 23.7%, as compared to the first quarter of 2004 of 21.6%.
	In the first quarter of 2005, income before income taxes was $641,000, or 8.0% higher than in the fourth quarter of 2004. Income from credit activities decreased by 7.1%, other income increased by $20,000, or 0.2% and total other expense decreased by $1,777,000, or 10.6%. Net income was $643,000, or 10.8% higher in the first quarter of 2005, as compared to the fourth quarter of 2004.
	Following are selected key ratios for the periods:

Net Interest Income

	The net interest margin, at 3.63% for the first quarter of 2005, was 26 basis points lower than the first quarter of 2004, with a $644,102,000 or 62.0% increase in average earning assets resulting in a 51.1% increase in net interest income. Yield on earning assets in the first quarter of 2005 increased by 21 basis points when compared to 2004’s first quarter, and cost of funding increased by 47 basis points. As compared to the fourth quarter of 2004, the net interest margin increased by three basis points in the first quarter of 2005.
	Following are key net interest margin ratios (annualized):

At March 31, 2005, Omega had $708,443,000 of earning assets scheduled to reprice over the next twelve months as compared to $807,146,000 in interest-sensitive liabilities, resulting in a negative gap of $98,703,000, or 4.9% of assets. In order to predict net interest income at risk over the next twelve months based on hypothetical rate movements, a rate shock simulation was performed on the balance sheet, assuming that interest rates would increase and decrease by 100 and 200 basis points. These simulations assume no volume or mix changes in the balance sheet. As the table below indicates, Omega is exposed to a possible loss of income over the next twelve months if interest rates fall. There have been no material changes in reported interest rate risk since December 31, 2004. For example, net interest income at risk for an immediate 100 basis point decrease in rates as of March 31, 2005 was $2,368,000, or 3.6%, of net interest income, compared to $2,658,000, or 4.1%, of net interest income at risk on December 31, 2004. Conversely, the results suggest that an immediate 100 basis point increase in interest rates would increase net interest income by approximately $2,326,000, or 3.5%, over a 12-month period. There is no guarantee however, that the changes in net interest income shown in this table will occur as predicted in the event of changes in interest rates.

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Loan Loss Provision

During the first three months of 2005, a loan loss provision of $142,000 was recorded, while in the first quarter of 2004 no provision to the loan loss reserve was necessary. The loan loss provision is reflective of changes in credit quality, including movement in non-performing loans in each quarter, as compared to the previous quarter and an analysis of the adequacy of the allowance for loan loss reserve. Although non-performing loans decreased by $1,179,000 from December 31, 2004 to March 31, 2005, management’s analysis of the loan loss reserve indicated the need for a provision of $142,000 to adequately provide for probable losses inherent in the total loan portfolio. In the fourth quarter of 2004, a credit of $300,000 was recorded to the loan loss provision.

Other Income and Expense

	Other income increased $4,748,000, or 127.0%, in the first quarter of 2005 as compared to the same period in 2004. Service fee income on deposit accounts increased by $801,000, or 59.8%, as a result of an increase of 47% in non-interest bearing deposits from March 31, 2004 to March 31, 2005. As compared to the fourth quarter of 2004, service fee income on deposit accounts decreased by $367,000 or 14.7% primarily as a result of decreased overdraft fees, which are traditionally highest during the fourth quarter of the year. Service fees on loans increased by $31,000, or 11.0% when compared to the first quarter of 2004, but decreased by $355,000 or 53.2% when compared to the fourth quarter of 2004. A 96% increase in bank-owned life insurance (BOLI) resulted in a 62.4%, or $221,000 increase in earnings on BOLI when comparing the first quarter results of 2005 and 2004 while the first quarter of 2005 and the fourth quarter of 2004 resulted in approximately the same BOLI expense. Trust fees increased in the first quarter of 2005 by $751,000, or 82.1% when compared to the same time period in 2004, as assets under management increased as a result of the Sun acquisition. When compared to the fourth quarter of 2004, trust fees increased by $228,000, or 15.9% in 2005. Insurance and investment product sales generated $770,000 more in revenues in the first quarter of 2005 as compared to the first quarter of 2004 and $211,000 more in revenues as compared to the fourth quarter of 2004. This occurred as a result of doubling the investment product sales staff and adding a full-functioning insurance agency as a subsidiary. Other non-interest income increased by a total of $489,000, or 90.6% primarily due to increased bank card service fees as Omega’s market area increased from seven counties to fourteen. Other non-interest income in the fourth quarter of 2004 was $237,000, or 18.7% higher than in the first quarter of 2005. Gains on the sale of investment securities, loans and other assets were $642,000 higher in the first quarter of 2005 than in the first quarter of 2004. Results from the first quarter of 2005 also include a gain on the early extinguishment of debt in the amount of $1,043,000, which was realized from the repayment of approximately $55 million of Federal Home Loan Bank (FHLB) debt as part of the balance sheet restructuring. Balance sheet restructuring efforts during the fourth quarter of 2004 yielded total net gains of $1,147,000 compared to $1,692,000 in the first quarter of 2005.
	As a percentage of average assets, annualized other income net of gains on securities, loans and other assets and early extinguishment of debt was 1.33 % for the first quarter of 2005 and for the same period in 2004. In the fourth quarter of 2004, the comparable ratio was 1.42%.

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	Other expenses increased $5,736,000, or 62.1%, in the first quarter of 2005 as compared to the same period in 2004. Salaries and employee benefits increased $2,596,000, or 52.4%, in 2005 as compared to the same period in 2004 as a result of staff increases principally due to the Sun merger. Salaries and employee benefits in the first quarter of 2005 were $642,000 lower than in the fourth quarter of 2004, when staff reduction transitions were occurring. Occupancy and equipment expense in total increased by $871,000, or 65.5%, with the addition of 25 retail offices from the Sun region, and the planned investment in technology. As compared to the previous quarter, occupancy and equipment costs increased by $34,000, or 1.6%. As expected, data processing service charges increased by $203,000 or 48.0% and Pennsylvania shares tax expense increased by $235,000, or 61.2% due to the increase in capital base when comparing the first quarter results of 2005 and 2004, and when comparing to the fourth quarter of 2004, first quarter 2005’s data processing service costs were increased by 14.4%. Amortization of intangible assets, at $163,000 for the first quarter of 2005 represented an increase of $160,000 when compared to the first quarter of 2004, with all of the increase related to the intangibles acquired in the Sun merger. In the fourth quarter of 2004, amortization of intangible assets was $231,000 higher than in the first quarter of 2005, when the core deposit intangible valuation was revised and reduced. Other non-interest expenses increased by $1,671,000 or 78.1%, compared to the same period in 2004, but decreased by $1,074,000 when compared to the previous quarter in 2004. Costs such as liability insurance, training costs, postage, telephone, legal and audit fees, service provider costs and charitable donations have increased with the growth of the company due to the Sun merger when comparing first quarter 2004 results with prior year’s first quarter results, but decreased since the fourth quarter of 2004 because of merger and integration-related costs incurred in the first quarter of combined operations.
	As a percentage of average assets, annualized expenses for the quarter ended March 31, 2005 were 2.92% and were 3.28% for the same period in 2004. In the first quarter of 2005, annualized expenses as a percentage of average assets were 3.25%.

Federal Income Tax

	The effective tax rate for the three months ended March 31, 2005 was 23.7%, compared to the same period in 2004 when the effective tax rate was 21.6%. For the year ended December 31, 2004, the effective tax rate was 23.8%.
2.	Investment Securities
	Management of the investment portfolio entails evaluation and realignment of the size and mix of the portfolio in order to balance various characteristics of the balance sheet, including asset quality, liquidity, yield relationships, maturity and tax planning.
	During the first quarter of 2005, management continued its restructuring of the fixed income investment portfolio acquired from Sun. Investment securities with a total amortized cost of $47,286,000 were liquidated, providing a gain of $374,000. The average remaining maturity of the securities sold was 12.50 years, which exceeds the two to five-year maturity period that Omega considers acceptable for its current interest rate risk position. Proceeds from the sale of the securities helped fund the early liquidation of $55,032,000 in long term debt acquired from Sun. In addition, as a result of favorable market conditions, $509,000 in equity securities were sold, providing a gain of $614,000.
	Total investment securities as a percentage of total assets at March 31, 2005 and December 31, 2004 were 15.7%. Amortized cost of securities maturing or repricing in one year or less comprised 13.4% of the total amortized cost of investment securities of $313,529,000 as of March 31, 2005, as compared to 17.2% of total investment securities of $322,555,000 as of December 31, 2004. There was $210,000 in investments in instruments of foreign countries on March 31, 2005 and December 31, 2004.
3.	Loans
	Net loans in the first three months of 2005 decreased by $47,398,000, or 3.6% from the balance at December 31, 2004, bringing the total to $1,281,783,000 at March 31, 2005. As part of a planned balance sheet restructuring following the Sun acquisition, a block of loans was sold, with a carrying value of

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approximately $22 million in the first quarter of 2005. The remainder of the decrease in loans is due to balance runoffs. Following is a table showing the composition of the loan portfolio (in thousands).

Changes in the allowance for loan losses for the three months ended March 31, 2005 and 2004 were as follows (in thousands):

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

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	Management performs a quantitative analysis to support the adequacy of the allowance for loan losses. This analysis includes review of historical charge-off rates for loan categories, fluctuations and trends in the amount of classified loans and economic factors. Significant to this analysis is any change in observable trends that may be occurring relative to loans, to assess potential credit weaknesses. Current economic factors and trends in risk ratings are considered in the determination and allocation of the allowance for loan losses. The allowance for loan losses at March 31, 2005 and December 31, 2004 represented 1.21% and 1.18%, respectively, of the total loans outstanding, net of unearned interest.
	Set forth below is an analysis of Omega’s non-performing loans as of March 31, 2005 as compared to December 31, 2004.

	The decrease of $1,179,000 in non-performing loans from December 31, 2004 to March 31, 2005 was due partially to the charge-offs of $422,000 during the first quarter of 2005 and the improvement of the amount of accruing loans past due 90 days or more.
4.	Deposits and Other Sources of Funds
	Deposits provide the primary source of funding for loans and investment securities. As of March 31, 2005, total deposits decreased by $13,297,000 as compared to December 31, 2004. As of March 31, 2005, non-interest bearing deposits decreased by $7,888,000, or 3.5% and interest bearing accounts decreased by $5,409,000, or 0.4% when compared to December 31, 2004.
	Borrowed funds are used as an additional source of funding for loans and investment securities. As of March 31, 2005, Omega had short-term borrowings (maturities within one year) in the amount of $78,251,000 as compared to $90,259,000 at December 31, 2004, representing a decrease of $12,008,000, or 13.3%. Long-term debt was $43,853,000 at March 31, 2005 compared to $99,579,000 at December 31, 2004. The decrease is due to the early extinguishment of FHLB debt acquired through the merger with Sun. Approximately $55 million of FHLB debt was repaid in the first quarter of 2005, giving rise to a $1,043,000 gain from the early extinguishment of debt. The balance of junior subordinated debt was $57,066,000 and $57,190,000 at March 31, 2005 and December 31, 2004, respectively.
5.	Regulatory Capital Compliance
	Bank regulatory authorities in the United States issue risk-based capital standards. These capital standards relate a banking company’s capital to the risk profile of its assets and provide the basis by which all banking companies and banks are evaluated in terms of capital adequacy. The risk-based capital standards require all banks to have Tier 1 capital of at least 4% and total capital, including Tier 1 capital, of at least 8% of risk-adjusted assets. Tier 1 capital includes common stockholders’ equity and qualifying perpetual preferred stock together with related surpluses and retained earnings. Total capital is comprised of Tier 1 capital, limited life preferred stock, qualifying debt instruments, and the reserves for possible loan losses. Banking regulators have also issued leverage ratio requirements. The leverage ratio requirement is measured as the ratio of Tier 1 capital to adjusted average assets.
	At March 31, 2005, Omega and Omega Bank, its banking subsidiary, each met the regulatory definition of a “well capitalized” financial institution, i.e., a leverage ratio exceeding 5%, Tier 1 capital exceeding 6% and total capital exceeding 10%.

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Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Omega is impacted by market risks, and has procedures in place to evaluate and mitigate these risks. These market risks and Omega’s procedures are described in the Management’s Discussion and Analysis section of the 2004 Annual Report to Shareholders. To the knowledge of Omega, there have been no material changes in the market risks that impact Omega or its procedures relative to these risks, since December 31, 2004.

Item 4. CONTROLS AND PROCEDURES

	Quarterly evaluation of the Company’s Disclosure Controls and Internal Controls. The Company’s management, with the participation of its chief executive officer and chief financial officer, conducted an evaluation of the effectiveness of our disclosure controls and procedures, as defined in Exchange Act Rule 13a-15(e), as of March 31, 2005. Based on that evaluation, the Company’s chief executive officer and chief financial officer concluded that the Company’s disclosure controls and procedures were effective in reaching a reasonable level of assurance that management is alerted to material information relating to the Company during the period when the Company’s periodic reports are being prepared.
	During the quarter ended March 31, 2005, there has not occurred any change in the Company’s internal control over financial reporting, as defined in Exchange Act Rule 13a-15(f), that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
	A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

PART II. Other Information

Item 1. Legal Proceedings

None of a material nature.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None

Item 3. Defaults upon Senior Securities

None

Item 4. Submission of Matters to a Vote of Security Holders

None

Item 5. Other Information

None

Item 6. Exhibits

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

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