UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

OR

Commission File Number: 0-13599

OMEGA FINANCIAL CORPORATION

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. Yes [X]        No[   ]

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 November 4, 2004:
12,550,775 shares of Common Stock, $5.00 par value

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Table of Contents

PART I. Financial Information

Item 1. Financial Statements

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

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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
(In thousands)
Unaudited

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		Supplemental schedule of noncash investing and financing activities: Non-cash investing activity consisted of transfers of loans in liquidation to other real estate owned with a value of $31 and $220 in the nine months ending September 30, 2004 and 2003, respectively.
		Cash and cash equivalents
		Cash equivalents consist of non-interest bearing deposits with other banks and funds held in escrow.

OMEGA FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NINE AND THREE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003

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 nine months and three months ended September 30, 2004 are not necessarily indicative of the results that may be experienced for the year ending December 31, 2004 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, 2003.
		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 September 30, 2004, standby letters of credit issued and outstanding amounted to $14,264,000 as compared to $13,118,000 on December 31, 2003. The fair market value of the standby letters of credit at September 30, 2004 and December 31, 2003 was $107,000 and $72,000, respectively. The fair market value of standby letters of credit is recorded as a liability in accordance with FIN 45.
		At September 30, 2004, the bank had $165,346,000 outstanding in loan commitments and other unused lines of credit extended to its customers. Of this amount, $112,173,000, or 67.8%, were commercial commitments. The remaining amounts of $53,173,000 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.

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		As of September 30, 2004, the balance of the ESOP debt was $2,277,000 as compared to $2,521,000 at December 31, 2003.
C.		Investment Securities:
		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 September 30, 2004 (in thousands):

		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 only to interest rate fluctuations. As a result, the payment of contractual cash flows, including principal repayment, is not at risk. Management has the intent and ability to hold these investments until market recovery or maturity. Debt securities with unrealized losses for a period of less than 12 months includes 37 investments in U.S. Government agency debt securities, three investments in mortgage-backed securities, nine investments in corporate securities and 43 investments in obligations of state and municipal subdivisions. Debt securities with unrealized losses for a period of 12 months or longer includes nine investments in U.S. Government agency debt securities, four investments in corporate securities and five investments in obligations of state and municipal subdivisions. Debt securities included in the above table have maturity or pre-refund dates ranging from October 2004 to December 2017. The unrealized loss position for each security ranges from ..01% to 3.44% of the securities’ amortized cost as of September 30, 2004. Unrealized losses for a period of less than 12 months on common stock include investment in two equity issues.
		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 nine months ended September 30, 2004 was 22.8%, compared to the same period in 2003 when the effective tax rate was 24.0%. For the third quarter of 2004, the effective tax rate was 23.5% compared to 24.5% in the third quarter of 2003. These decreases in effective tax rates from 2003 to 2004 are the effect of the Corporation receiving increased tax deductions for dividends it paid on company stock held by the Employee Stock Ownership Plan.
E.		Junior Subordinated Debt and Trust Preferred Securities:
		On September 20, 2004, Omega formed Omega Financial Capital Trust I. This Trust was formed for the purpose of issuing $36.0 million in trust preferred securities through a pooled trust preferred program. The Trust Preferred Securities were issued and sold in private placement offerings. The proceeds from the sale thereof were invested in Junior Subordinated Deferrable Interest Debentures issued by Omega

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		Financial Corporation. All proceeds from the sale of the Trust Preferred Securities and the common securities issued by the Trust are invested in Junior Subordinated Debentures, which are the sole assets of the Trust. The Trust pays dividends on the Trust Preferred Securities at the same rate as the distributions paid by Omega on the Junior Subordinated Debentures held by the Trust. The Trust provides Omega with the option to defer payment of interest on the debentures for an aggregate of 20 consecutive quarterly periods. If this option is used, Omega may not declare or pay dividends on its common stock during any such period. The Trust Preferred Securities are guaranteed by Omega pursuant to a guarantee issued by Omega in favor of the Wilmington Trust as trustee for the trust.
		Omega accounts for the Trust under the provisions of FIN 46. The Trust is a special purpose trust, formed for the issuance of trust preferred securities to outside investors and Omega does not absorb a majority of the expected losses or residual returns of the Trust. The Trust is not consolidated and therefore the Trust Preferred Securities are not included in the Corporation’s Consolidated Balance Sheet. The Junior Subordinated Debt obligations to the special purpose trust are presented as a separate category of long-term debt on the Consolidated Balance Sheet. The equity investment in the common stock of the special purpose trust is recognized as an investment in unconsolidated subsidiary on the Consolidated Balance Sheet.
		The Federal Reserve Board currently allows bank holding companies to include trust preferred securities, up to a certain limit, in Tier 1 Capital. The following table shows Omega’s Trust subsidiary with outstanding Trust Preferred Securities as of September 30, 2004 (Unaudited, in thousands):

		The Trust Preferred securities and the Junior Subordinated Debt carry a fixed interest rate of 5.98% through October 18, 2009 and a variable rate equal to LIBOR plus 2.19% thereafter. The securities are redeemable at par at anytime after October 18, 2009. The interest expense incurred on the trust preferred securities and junior subordinated debt for the three and nine months ended September 30, 2004 was $61,000. Proceeds from the issuance of the junior subordinated debt were placed in escrow on September 30, 2004 to fund the Sun Bancorp acquisition on October 1, as more fully disclosed in Note J.
F.		Line of Credit:
		During the third quarter of 2004, Omega obtained a revolving credit and term loan agreement to fund incremental costs associated with the acquisition of Sun Bancorp, Inc. The revolving credit facility allows borrowings up to $45,000,000 for a period not exceeding 120 days, after which the loan will term out the outstanding principal not to exceed $12,000,000 for a period of seven years. The interest rate is LIBOR plus 1.25%. As of September 30, 2004, no advances had been made on this credit line, however, during October 2004, $4,900,000 has been drawn.
G.		Comprehensive Income:
		Components of other comprehensive income consist of the following (in thousands):

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