SECURITIES AND EXCHANGE COMMISSION
WASHINGTON DC 20549
FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2002
or
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________
Commission File No. 0-13599
Omega Financial Corporation
(Exact name of registrant as specified in its charter)
Pennsylvania 25-1420888
(State or other jurisdiction (IRS Employer
or incorporation oforganization) Identification No.)
366 Walker Drive State College, Pennsylvania 16801
(Address of principal executive offices) (Zip Code)
(814) 231-7680
Registrant's Telephone Number, Including Area Code
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 twelve months (or for such shorter period that the registrant was
requested to file such reports), and (2) has been subject to such filing
requirements for the past sixty days. Yes |X| |No|
--- ---
The number of shares outstanding of each of the Registrant's classes of common
stock as of July 31, 2002:
Common Stock, $5.00 par value - 8,198,000 shares
PART I. Financial Information
Item 1. Financial Statements
OMEGA FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
Unaudited
June 30, December 31,
Assets 2002 2001
----------- -----------
Cash and due from banks $ 35,784 $ 39,072
Interest bearing deposits with other banks 2,582 31,812
Federal funds sold 18,850 14,450
Investment securities held to maturity (Market value:
$5,054 and $3,851, respectively) 5,054 3,851
Investment securities available for sale 278,035 263,501
Total loans 777,412 760,395
Less: Unearned discount (21) (41)
Allowance for loan losses (11,436) (11,224)
----------- -----------
Net loans 765,955 749,130
Premises and equipment, net 15,045 15,563
Other assets 42,132 41,250
----------- -----------
TOTAL ASSETS $ 1,163,437 $ 1,158,629
=========== ===========
Liabilities and Shareholders' Equity
Deposits:
Non-interest bearing $ 148,728 $ 138,433
Interest bearing 784,159 793,234
----------- -----------
Total deposits 932,887 931,667
Short-term borrowings 39,740 37,572
Other liabilities 10,656 12,093
ESOP debt 2,973 3,110
Long-term debt 16,716 17,234
Other interest bearing liabilities 698 703
----------- -----------
TOTAL LIABILITIES 1,003,670 1,002,379
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 (2,002) (2,125)
Common stock, par value $5.00 per share:
Authorized - 25,000,000 shares;
Issued -
9,549,310 shares at June 30, 2002;
9,447,623 shares at December 31, 2001
Outstanding -
8,195,130 shares at June 30, 2002;
8,222,010 shares at December 31, 2001 47,746 47,238
Capital surplus 9,667 7,856
Retained earnings 133,812 129,774
Accumulated other comprehensive income 6,149 4,943
Cost of common stock in treasury:
1,354,180 shares at June 30, 2002;
1,225,613 shares at December 31, 2001 (40,605) (36,436)
----------- -----------
TOTAL SHAREHOLDERS' EQUITY 159,767 156,250
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,163,437 $ 1,158,629
=========== ===========
OMEGA FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except share data)
Unaudited
Three Months Ended Six Months Ended
June 30, June 30,
2002 2001 2002 2001
----------- ---------- ---------- ----------
Interest Income:
Interest and fees on loans $ 13,294 $ 15,726 $ 26,649 $ 31,583
Interest and dividends on investment securities 3,050 3,342 6,152 6,545
Other interest income 80 313 250 901
----------- ---------- ---------- ----------
TOTAL INTEREST INCOME 16,424 19,381 33,051 39,029
Interest Expense:
Interest on deposits 4,641 7,364 9,740 14,909
Interest on short-term borrowings 199 456 390 982
Interest on long-term debt and
other interest bearing liabilities 200 270 405 530
----------- ---------- ---------- ----------
TOTAL INTEREST EXPENSE 5,040 8,090 10,535 16,421
----------- ---------- ---------- ----------
NET INTEREST INCOME 11,384 11,291 22,516 22,608
Provision for loan losses 250 -- 480 --
----------- ---------- ---------- ----------
INCOME FROM CREDIT ACTIVITIES 11,134 11,291 22,036 22,608
Other Income:
Service fees on deposit accounts 1,171 1,050 2,152 2,047
Trust fees 877 853 1,928 1,740
Gain on sale of loans and other assets (1) 9 63 --
Net gains on investment securities 58 255 150 315
Other 1,423 1,304 2,850 2,564
----------- ---------- ---------- ----------
TOTAL OTHER INCOME 3,528 3,471 7,143 6,666
Other Expense:
Salaries and employee benefits 4,869 4,864 9,753 9,744
Net occupancy expense 566 600 1,126 1,192
Equipment expense 648 535 1,218 1,128
Data processing service 419 397 826 791
Other 2,486 2,484 5,009 4,817
----------- ---------- ---------- ----------
TOTAL OTHER EXPENSE 8,988 8,880 17,932 17,672
----------- ---------- ---------- ----------
Income before taxes 5,674 5,882 11,247 11,602
Income tax expense 1,215 1,482 2,539 2,957
----------- ---------- ---------- ----------
NET INCOME $ 4,459 $ 4,400 $ 8,708 $ 8,645
=========== ========== ========== ==========
Net income per common share:
Basic $ .53 $ .52 $ 1.03 $ 1.01
Diluted $ .51 $ .50 $ 1.00 $ 0.97
Weighted average shares and equivalents:
Basic 8,226,527 8,267,681 8,230,127 8,351,223
Diluted 8,687,300 8,731,957 8,676,669 8,788,204
Dividends declared per share:
Common $ .28 $ .27 $ .56 $ .53
Preferred $ .45 $ .45 $ .90 $ .90
OMEGA FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Six Months Ended
June 30,
--------------------
2002 2001
-------- --------
Cash flows from operating activities:
Net income $ 8,708 $ 8,645
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 1,663 1,014
Provision for loan losses 480 --
Gain on sale of investment securities (150) (210)
Non-monetary exchange of cost-method investments -- (105)
Gain on sale of fixed assets
and other property owned -- (22)
Loss on sale of loans (63) 22
Increase in deferred tax asset (206) (359)
Increase in cash surrender value of bank owned life insurance (773) (530)
Increase in interest receivable and other assets (626) (9)
Decrease in interest payable (356) (356)
Decrease in taxes payable (155) (24)
Amortization of deferred net loan costs (128) (57)
Deferral of net loan fees 320 207
Increase in accounts payable
and accrued expenses (999) 1,125
-------- --------
Total adjustments (993) 696
-------- --------
Net cash provided by operating activities 7,715 9,341
Cash flows from investing activities: Proceeds from the sale
or maturity of:
Investment securities available for sale 65,469 48,639
Investment securities held to maturity -- 55
Purchase of:
Investment securities held to maturity (1,208) (154)
Investment securities available for sale (78,642) (69,598)
Net change in interest bearing deposits with other banks 29,230 (105)
Increase in loans (22,209) (21,996)
Gross proceeds from sale of loans 4,775 74
Capital expenditures (505) (1,518)
Sale of fixed assets and other property owned 69 30
Net change in federal funds sold (4,400) 17,300
-------- --------
Net cash used in investing activities (7,421) (27,273)
Cash flows from financing activities:
Increase in deposits, net 1,220 31,367
Net change in short-term borrowings 2,168 (9,885)
Issuance of long term debt -- 11,015
Principal payment on long-term debt (518) (174)
Net change in other interest bearing liabilities (5) 1
Dividends paid (4,729) (4,601)
Tax benefit from preferred stock dividend
and stock option activity 132 32
Issuance of common stock 2,319 1,779
Acquisition of treasury stock (4,169) (12,695)
-------- --------
Net cash provided by (used in) financing activities (3,582) 16,839
-------- --------
Net decrease in cash and due from banks $ (3,288) $ (1,093)
======== ========
Cash and due from banks at beginning of period $ 39,072 $ 40,340
Cash and due from banks at end of period 35,784 39,247
-------- --------
Net decrease in cash and due from banks $ (3,288) $ (1,093)
======== ========
Interest paid $ 10,891 $ 16,777
Income taxes paid 2,812 3,300
OMEGA FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
SIX AND THREE MONTHS ENDED JUNE 30, 2002 AND 2001
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 six months and
three months ended June 30, 2002 are not necessarily indicative of the
results that may be experienced for the year ending December 31, 2002 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, 2001.
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 and Contingent Liabilities:
In the ordinary course of business, Omega and its subsidiaries make
commitments to extend credit to their customers. At June 30, 2002 and
December 31, 2001 standby letters of credit issued and outstanding
amounted to $14,748,000 and $16,413,000, respectively. These letters of
credit are not reflected in the accompanying financial statements.
Management does not anticipate any significant losses as a result of these
transactions.
At June 30, 2002, the Corporation had $162,904,000 outstanding in unused
lines of credit commitments extended to its customers. Of this amount,
$38,817,000, or 23.8%, are commitments to consumers for home equity and
other lines of credit. The remainder, $124,087,000, are commercial
commitments.
C. Comprehensive Income:
Components of comprehensive income consist of the following:
Three Months Ended June 30, 2002 Three Months Ended June 30, 2001
Before Tax Expense Before Tax Expense
Tax or Net-of-Tax Tax or Net-of-Tax
Amount (Benefit) Amount Amount (Benefit) Amount
------- ------- ------- ------- ------- -------
Net income $ 5,674 $ 1,215 $ 4,459 $ 5,882 $ 1,482 $ 4,400
Other comprehensive income:
Unrealized gains on available for sale securities:
Unrealized holding gains arising during the period 2,982 1,044 1,938 1,081 378 703
Less reclassification adjustment for gains included
in net income (58) (20) (38) (255) (89) (166)
------- ------- ------- ------- ------- -------
Other comprehensive income 2,924 1,024 1,900 826 289 537
------- ------- ------- ------- ------- -------
Total comprehensive income $ 8,598 $ 2,239 $ 6,359 $ 6,708 $ 1,771 $ 4,937
======= ======= ======= ======= ======= =======
Six Months Ended June 30, 2002 Six Months Ended June 30, 2001
Before Tax Expense Before Tax Expense
Tax or Net-of-Tax Tax or Net-of-Tax
Amount (Benefit) Amount Amount (Benefit) Amount
-------- ------- ------- -------- ----------- --------
Net income $ 11,247 $ 2,539 $ 8,708 $ 11,602 $ 2,957 $ 8,645
Other comprehensive income:
Unrealized gains on available for sale securities:
Unrealized holding gains arising during the period 2,005 702 1,303 3,576 1,252 2,324
Less reclassification adjustment for
gains included in net income (150) (53) (97) (315) (110) (205)
-------- ------- ------- -------- ------- --------
Other comprehensive income 1,855 649 1,206 3,261 1,142 2,119
-------- ------- ------- -------- ------- --------
Total comprehensive income $ 13,102 $ 3,188 $ 9,914 $ 14,863 $ 4,099 $ 10,764
======== ======= ======= ======== ======= ========
D. Earnings Per Share Data:
Basic earnings per share is 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)
Six Months Ended June 30, 2002 Six Months Ended June 30, 2001
--------------------------------------- ---------------------------------------
Income Shares Per-Share Income Shares Per-Share
Numerator Denominator Amount Numerator Denominator Amount
--------------------------------------- ---------------------------------------
Net income $ 8,708 $ 8,645
Less: Preferred stock dividends (198) (198)
------- -------
Basic EPS
Income available to common
shareholders 8,510 8,230 $ 1.03 8,447 8,351 $ 1.01
======= =======
Effect of Dilutive Securities
Impact of :
Assumed conversion of preferred
to common stock 346 346
Assumed exercises of outstanding
options 100 91
Preferred stock dividends
available to common shareholders 198 198
Elimination of tax benefit of
allocated preferred dividends (40) (36)
Additional expense required to fund
ESOP debt, net of tax impact (2) (10)
----------------------- -----------------------
Diluted EPS
Income available to common
shareholders plus assumed
conversions $ 8,666 8,676 $ 1.00 $ 8,599 8,788 $ 0.97
====================================== ======================================
Six Months Ended June 30, 2002 Six Months Ended June 30, 2001
--------------------------------------- ---------------------------------------
Income Shares Per-Share Income Shares Per-Share
Numerator Denominator Amount Numerator Denominator Amount
--------------------------------------- ---------------------------------------
Net income $ 4,459 $ 4,400
Less: Preferred stock dividends (99) (99)
Basic EPS
------- ------
Income available to common
shareholders 4,360 8,227 $ 0.53 4,301 8,268 $ 0.52
======= =======
Effect of Dilutive Securities
Impact of:
Assumed conversion of preferred
to common stock 346 346
Assumed exercises of outstanding
options 114 118
Preferred stock dividends
available to common shareholders 99 99
Elimination of tax benefit of
allocated preferred dividends (20) (18)
Additional expense required to fund
ESOP debt, net of tax impact (1) (4)
----------------------- -----------------------
Diluted EPS
Income available to common
shareholders plus assumed
conversions $ 4,438 8,687 $ 0.51 $ 4,378 8,732 $ 0.50
====================================== ======================================
E. Recent Accounting Pronouncements:
In June 2002, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities". This Statement nullifies Emerging
Issues Task force (EITF) Issue No. 94-3, "Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring)." The principal
difference between this Statement and Issue No. 94-3 relates to its
requirements for recognition of a liability for a cost associated with an
exit or disposal activity. Statement 146 requires that such a liability be
recognized when the liability is incurred as opposed to the date of an
entity's commitment to an exit plan, as defined in Issue No. 94-3. The
provisions of this Statement are effective for exit or disposal activities
that are initiated after December 31, 2002, with early application
encouraged. The adoption of this Statement is not expected to have a
material impact on results of operations or financial position.
In April 2002, the FASB issued Statement of Financial Accounting Standards
No. 145, Rescission of FASB Statements No. 4, 44, and 62, Amendment of
FASB Statement No. 13, and Technical Corrections (Statement 145). Among
other things, Statement 145 eliminates the requirement under FASB
Statement No. 4, Reporting Gains and Losses from Extinguishment of Debt to
report gains and losses from extinguishments of debt as extraordinary
items in the income statement. Similarly, FASB Statement No. 64,
Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements has been
rescinded. Accordingly, gains or losses from extinguishments of debt for
fiscal years beginning after May 15, 2002 shall not be reported as
extraordinary items unless the extinguishment qualifies as an
extraordinary item under the provisions of APB Opinion No. 30. Statement
145 also amends Statement 13 to require certain modifications to capital
leases be treated as a sale-leaseback and modifies the accounting for
sub-leases when the original lessee remains a secondary obligor (or
guarantor). The adoption of this Statement is not expected to have a
material impact on the Company's results of operations or financial
condition.
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, 2001. A copy of this report can be obtained
from David N. Thiel, Senior Vice President, Omega Financial Corporation,
366 Walker Drive, State College, Pennsylvania 16801.
Forward Looking Statements
The information in this 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 this
Report on Form 10-Q, the Corporation's 2001 Annual Report or in Omega's
Annual Report on Form 10-K for the year ended December 31, 2001. Copies of
these reports may be obtained from Omega upon request and without charge
(except for the exhibits thereto) as described above.
- --------------------------------------------------------------------------------
1. Comparison of the Six and Three Months Ended June 30, 2001 and 2000
Operations Overview
A. Six months ended June 30, 2002 and 2001
For the first six months of 2002, income before taxes decreased by
$355,000, or 3.1%, compared to the same period in 2001. Income from credit
activities decreased $572,000, or 2.5%. Non-interest income increased
$477,000 or 7.2% while non-interest expense increased $260,000, or 1.5%.
The tax provision for the first six months of 2002 decreased by $418,000,
or 14.1% when compared to the first six months of 2001. The effective tax
rate for this period fell from 25.5% in 2001 to 22.6% for the
corresponding period in 2002. Net income increased by $63,000, or 0.7%, in
the first six months of 2002 as compared to the same period in 2001.
B. Three months ended June 30, 2002 and 2001
The second quarter's income before income taxes decreased $208,000, or
3.5%, when compared to the same period in 2001. Income from credit
activities decreased by $157,000, from $11,291,000 in the second quarter
of 2001 to $11,134,000 in the second quarter of 2002. Non-interest income
increased $57,000, or 1.6% and non-interest expense increased by $108,000,
or 1.2%.
After the income tax provision (which decreased by $267,000, or 18.0%
compared to the same period in 2001) was deducted from earnings, net
income was $59,000, or 1.3%, higher than the second quarter of
2001. The effective tax rate for the second quarter of 2002 was 21.4%, as
compared to the second quarter of 2001 of 25.2%.
Following are selected key ratios for the period:
Three Months Ended Six Months Ended
June 30 June 30
---------------------- --------------------
2002 2001 2002 2001
-------- --------- --------- ---------
Return on average assets (annualized)......... 1.54% 1.55% 1.51% 1.54%
Return on average equity (annualized)......... 11.21 11.60 10.96 11.36
Dividend payout ratio (common)................ 51.41 50.51 52.87 50.76
Average equity to average assets.............. 13.72 13.38 13.76 13.58
Net Interest Income
A. Six months ended June 30, 2002 and 2001
Omega's net interest income for the first six months of 2002 declined by
$92,000, or 0.4%. Average earning assets increased by $24,380,000, or 2.3%
when compared to June 2001. Yield on earning assets was 6.20% in 2002 as
compared to 7.49% in 2001. Cost to fund earning assets was 1.98% in 2002,
118 basis points lower than the 3.16% in 2001. On a fully tax equivalent
basis, the net interest margin dropped by 9 basis points to 4.52% in 2002
from 4.61% in 2001. See the chart below for a comparison of the components
of the net interest margin.
B. Three months ended June 30, 2002 and 2001
The net interest spread, at 4.24% for the second quarter of 2002, was 4
basis points lower than the second quarter of 2001, with a $19,313,000 or
1.8% increase in average earning assets resulting in a 0.8% increase in
net interest income. Yield on earning assets in the second quarter of 2002
declined by 124 basis points when compared to 2001's second quarter, while
cost of funding decreased by 120 basis points.
Following are key net interest margin ratios (annualized):
Three Months Ended Six Months Ended
June 30 June 30
-------------------------- -------------------------
2002 2001 2002 2001
------------- ------------ ------------ ------------
Yield on average earning assets......... 6.11% 7.35% 6.20% 7.49%
Cost to fund earning assets............. 1.87 3.07 1.98 3.16
Net interest margin..................... 4.24 4.28 4.22 4.33
Net interest margin - tax equivalent.... 4.55 4.58 4.52 4.61
At June 30, 2002, Omega had $430,899,000 of earning assets scheduled to
reprice over the next twelve months as compared to $514,245,000 in
interest bearing liabilities, resulting in a negative gap of $83,346,000,
or 7.2% 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. In the event that interest
rates would decrease immediately by 100 basis points, results of the rate
shock simulation suggest that Omega's net interest income over the next
twelve months would decrease by approximately 0.8%, or $393,000.
Conversely, the results of a rate shock simulation of an immediate 100
basis point increase in interest rates indicates an increase in net
interest income of approximately $398,000, or 0.8% over a twelve-month
period. These simulations assume no volume or mix changes in the balance
sheet.
Loan Loss Provision
In the second quarter of 2002, a loan loss provision of $250,000 was
recorded, bringing the year to date provision to $480,000 in 2002. In
2001, no provision had been made to the allowance for loan losses
through June 30. The increase in non-performing loans and the analysis of
loans on Omega's watch list was responsible for the increase.
Other Income and Expense
A. Six months ended June 30, 2002 and 2001
Other income increased $477,000, or 7.2% in the first six months of 2002
as compared to the same period in 2001. Excluding gains resulting from
sales of investment securities, loans and other assets, normal operating
non-interest income rose by $642,000, or 10.1%. This was due to increases
of 5.1% in service fees on deposits, 4.3% in fees on loans, 10.8% on fees
from trust relationships and 12.7% in other non-interest income.
Investment security gains in 2001 exceeded those in 2002 by $165,000, or
52.4%.
As a percentage of average assets, annualized other income net of gains on
assets sold was 1.20% for the first six months of 2002 as compared to 1.13
% in 2001.
Other expenses were $260,000, or 1.5% higher for the first six months of
2002 than for the same period in 2001. Salaries and employee benefits were
$9,000, or 0.1% higher in 2002 than in 2001. Occupancy and equipment
expense increased by $24,000, or 1.0%. Other expense increased by
$227,000, or 4.0% in the first six months of 2002 as compared to the same
period in 2001.
As a percentage of average assets, annualized expenses for the period
ended June 30, 2002 were 3.11% and were 3.15% for the same period in 2001.
B. Three months ended June 30, 2002 and 2001
Other income increased $57,000, or 1.6% in the second quarter of 2002 as
compared to the same period in 2001. Excluding gains on assets sold, other
income was improved by $264,000 or 8.2% when comparing the quarters.
Service fees on deposit accounts increased by 11.5% while trust fees
increased by 2.8%. Gains on the sale of securities and other assets were
$207,000 lower during the second quarter of 2002 than 2001.
As a percentage of average assets, annualized other income net of gains
and losses was 1.20% for the second quarter of 2002 as compared to 1.13 %
in 2001.
Other expenses were $108,000, or 1.2% higher for the second quarter of
2002 than for the same period in 2001. Salaries and employee benefits were
$5,000, or 0.1% higher in the second quarter of 2002 than the
corresponding period in 2001. Occupancy and equipment expenses increased
by 7.0%, while other non-interest expenses increased by 0.8%.
As a percentage of average assets, annualized expenses for the quarter
ended June 30, 2002 were 3.10% and were 3.13% for the same period in 2001.
Federal Income Tax
Income tax expense decreased by $418,000, or 14.1%, in the first six
months of 2002 compared to the same period in 2001. Income tax expense
decreased by $267,000, or 18.0% in the second quarter of 2002 as compared
to the same quarter of 2001. This improvement is due primarily to the
18.8% and 20% increase in average outstanding tax free investments and
loans year to date and for the second quarter, respectively.
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.
The following schedule details characteristics of the investment
portfolio as of June 30, 2002 and December 31, 2001.
Securities Classified as Available for Sale
Gross Gross Estimated
Amortized Unrealized Unrealized Market
June 30, 2002 Cost Gains Losses Value
--------------------------------------------------------
U.S. Treasury securities and
obligations of other U.S.
Government agencies and corporations $142,141 $2,374 $0 $144,515
Obligations of state and
political subdivisions 98,878 2,831 -- 101,709
Corporate securities 13,597 218 (5) 13,810
Mortgage backed securities 7,205 129 (1) 7,333
Equity securities 6,764 3,916 (12) 10,668
-------------------------------------------------------
Total $268,585 $9,468 ($18) $278,035
=======================================================
Securities Classified as Available for Sale
Gross Gross Estimated
Amortized Unrealized Unrealized Market
June 30, 2002 Cost Gains Losses Value
--------------------------------------------------------
Investment in low-income housing $751 -- -- $751
Equity securities (non-marketable) 4,303 -- -- 4,303
--------------------------------------------------------
Total $5,054 $ -- $ -- $5,054
=======================================================
Securities Classified as Available for Sale
Gross Gross Estimated
Amortized Unrealized Unrealized Market
December 31, 2001 Cost Gains Losses Value
--------------------------------------------------------
U.S. Treasury securities and
obligations of other U.S.
Government agencies and corporations $114,261 $2,227 $ 0 $116,488
Obligations of state and
political subdivisions 107,383 1,728 (6) 109,105
Corporate securities 19,439 396 (49) 19,786
Mortgage backed securities 8,020 212 -- 8,232
Equity securities 6,804 3,152 (66) 9,890
--------------------------------------------------------
Total $255,907 $7,715 ($121) $263,501
=======================================================
Securities Classified as Available for Sale
Gross Gross Estimated
Amortized Unrealized Unrealized Market
December 31, 2001 Cost Gains Losses Value
--------------------------------------------------------
Investment in low-income housing $694 -- -- $694
Equity securities (non-marketable) 3,157 -- -- 3,157
--------------------------------------------------------
Total $3,851 $ -- $ -- $3,851
=======================================================
Total investment securities as a percentage of total assets at June 30, 2002 and
December 31, 2001 were 24.3% and 23.1%, respectively. Securities maturing or
repricing in one year or less comprised 31.2% of the total investment securities
of $283,089,000 as of June 30, 2002, as compared to 32.0% of total investment
securities of $267,352,000 as of December 31, 2001. There was $210,000 in
investments in instruments of foreign countries on June 30, 2002.
3. Loans
Net loans in the first six months of 2002 increased by $16,825,000, or
2.2% from the balance at December 31, 2001, bringing the total to
$765,955,000 at June 30, 2002. Increases in commercial loans of
$36,498,000, or 9.1% were partially offset by the decline in consumer
loans of $19,670,000, or 12.4%.
Changes in the allowance for loan losses for the six months ended June 30,
2001 and 2000 were as follows (in thousands):
2002 2001
------------- --------------
Balance at January 1..................................... $11,224 $11,622
Charge-offs.............................................. (324) (369)
Recoveries............................................... 56 233
------------- --------------
Net charge-offs...................................... (268) (136)
Provision for loan losses................................ 480 --
------------- --------------
Balance at June 30....................................... $11,436 $11,486
============= ==============
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. The allowance
for loan losses at June 30, 2002 and 2001 represented 1.47% and 1.48%,
respectively, of the total loans outstanding, net of unearned interest.
Set forth below is an analysis of Omega's non-performing loans as of June
30, 2002 as compared to December 31, 2001.
Non-performing Loans
(In thousands)
June 30, December 31,
2002 2001
------------- --------------
Non-accrual loans........................................ $2,669 $2,327
Accruing loans past due 90 days or more.................. 1,236 1,209
Restructured loans....................................... 20 32
------------- --------------
Total non-performing loans............................... $3,925 $3,568
============= ==============
Non-performing loans as percent of allowance............. 34.3% 31.8%
The increase in non-performing loans from December 31, 2001 to June 30,
2002 was primarily due to the increase in loans in non-accrual status.
4. Deposits and Other Sources of Funds
Deposits provide the primary source of funding for loans and investment
securities. As June 30, 2002, total deposits increased by $1,220,000 or
0.1%, as compared to December 31, 2001. Interest bearing deposits
decreased by $9,075,000, or 1.1% and non-interest bearing accounts
increased by $10,295,000 or 7.4%.
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 June 30, 2002, Omega and each of its banking subsidiaries 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%.
7. Share Repurchase Program
In January of 2002, the Board approved a new share repurchase program to
begin immediately, authorizing management to buy back an additional 10% of
its common stock. At that time, there were 8,222,010 common shares
outstanding with 822,201 shares eligible to be repurchased. This program
will remain in effect through December 31, 2002, or until the 10% limit is
reached; however, it may be discontinued at any time. As of July 31, 2002,
155,567 shares have been repurchased in conjunction with this program.
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
Annual Report to Shareholderson Form 10-K for the year ended December 31,
2000, a copy of which can be obtained as described in the first paragraph
of Item 2 above. There have been no material changes in the market risks
that impact Omega or their procedures relative to these risks, since
December 31, 2001.
PART II. Other Information
Item 1. Legal Proceedings
None
Item 2. Changes in Securities and Use of Proceeds
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Shareholders of Omega was held on April 22, 2002.
At the Annual Meeting, the shareholders elected a class of directors
for a term of three years, as described below.
Name For Withhold Authority
---- --- ------------------
Philip E. Gingerich 6,172,410 401,526
D. Stephen Martz 5,647,679 560,340
James W. Powers, Sr. 5,818,917 389,102
The terms of the following directors continued after the annual meeting:
Raymond F. Agostinelli, David B. Lee, Robert N. Oliver, Stanton R. Sheetz,
and Robert A. Szeyller
Also, at the annual meeting, the shareholders approved a proposal to
increase the number of shares that may be issued under the 1994 Stock
Option Plan for Non-Employee Directors by 25,000 shares as described
below.
For Against Broker Non-Vote
--- ------- ---------------
4,949,851 1,160,140 -0-
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) None
(b) Reports on Form 8K
The company filed a Form 8-K on April 11, 2002 regarding a change in
the Company's certifying accountants.
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.
OMEGA FINANCIAL CORPORATION
---------------------------
(Registrant)
August 12, 2002 By: /s/ David B. Lee
- ---------------- -----------------------
Date David B. Lee
Chairman and
Chief Executive Officer
August 12, 2002 /s/ Daniel L. Warfel
- ---------------- -----------------------
Date Daniel L. Warfel
Executive Vice President and
Chief Financial Officer