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):