OMEF Omega Financial (MM)

STATE COLLEGE, Pa., July 30 /PRNewswire-FirstCall/ -- Omega Financial Corporation (NASDAQ:OMEF) reported second quarter net income of $5.0 million versus $5.3 million for the same period last year. For the six months ended June 30, net income was $10.5 million in 2007 compared to $10.7 million for 2006, company officials said. Fully diluted earnings per share were $0.39 for the quarter and $0.83 for the year to date. Donita R. Koval, Omega's president and chief executive officer stated that earnings were significantly impacted by increased loan loss provisions but noted, "Our basic strategies of managing interest rate risk, focusing on transaction and service revenues and containing operating costs are sound and favorably reflected in the continued strength of the net interest margin, increases in non-interest income as well as reductions in non-interest expense." The loan loss provision for the second quarter of 2007 totaled $0.7 million, an increase of $0.6 million over the same period in 2006. The level of the second quarter provision relates primarily to specific provisions recoded for two commercial borrowers. While non-performing loans have declined $4.3 million from the first quarter to $22.7 million at June 30, 2007, net charge-offs increased $5.3 million and certain commercial credits were downgraded during the quarter. Management is actively working to minimize the ultimate losses on these credits. No material provision was necessary in the second quarter for the large commercial borrower who filed for bankruptcy protection in 2006. This borrower emerged from bankruptcy reorganization in May 2007 and as a result $4.4 million of this borrower's loans were charged off in the second quarter. These loans had been appropriately considered in establishing the allowance for loan losses in prior periods. As of June 30, 2007, total loans outstanding to this borrower totaled $14.2 million, with a specific allocation of the loan loss reserve totaling $1.8 million, which management deems to be adequate. These loans remain on non-accrual status until the new entity demonstrates consistent positive operating cash flow. The company's net interest margin for the second quarter was 4.19% on a fully tax-equivalent basis compared to 4.09% for the same period last year. Koval attributed this 10 basis point increase to a disciplined approach in pricing both loans and deposits. She noted that while this approach has limited balance sheet growth in recent periods it has set the foundation for profitable future growth. For the year, net interest margin grew by 15 basis points as compared to the same period in 2006. The net interest margin grew despite decreases in net interest income of $.4 million for the quarter and $0.6 million for the year. Koval noted that the 2006 second quarter net interest income included $0.3 million attributable to three branches sold in the final quarter of last year. Those three branches accounted for $0.5 million of Omega's interest income as of June 30, 2006. Excluding gains on the sale of assets, other income increased $0.4 million or 5.8% for the quarter and $0.5 million or 3.8% year to date. Non-interest income grew for both the quarter and year to date in several categories, including revenues on deposits, wealth management and other income. The three branch locations sold in 2006 contributed $0.06 million in the second quarter 2006 and $0.1 million for the six months ended June 30, 2006. The company continues to be successful in controlling non-interest expense, evidenced by a decline in expenses of $.6 million or 4.15% for the quarter and $1.5 million or 4.85% year to date. Expense savings came in several areas due primarily to renegotiations on key operating contracts and restructuring of certain business lines, including the formation of a mortgage joint venture. Quarterly and annual reports, a corporate profile, stock quotes and other financial data can be accessed through the Omega web site at http://www.omegafinancial.com/ . Financial statements and selected financial highlights are summarized on the following pages. OMEGA FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED FINANCIAL HIGHLIGHTS (Unaudited) (In thousands, except as indicated * ) Three Months Ended June 30, 2007 2006 % Change Earnings: Net income $4,963 $5,345 (7.1)% Per share statistics: * Diluted earnings $.39 $.42 (7.1)% Dividends declared - common .31 .31 - Book value - common 25.96 25.41 2.2 Book value - tangible 12.83 11.89 7.9 Market value - High 29.66 34.10 (13.0) Low 26.67 28.19 (5.4) Financial position at period end: Assets $1,807,454 $1,908,401 (5.3)% Net loans 1,131,198 1,178,251 (4.0) Deposits 1,317,084 1,420,652 (7.3) Shareholders' equity 327,743 318,819 2.8 Average Balances: Assets $1,801,121 $1,908,861 (5.6)% Net loans 1,134,049 1,180,827 (4.0) Deposits 1,306,376 1,416,002 (7.7) Shareholders' equity 330,369 321,768 2.7 Non-Performing Loans at period end: Non-accrual loans $20,717 $22,922 (9.6)% Accruing loans past due 90 days or more 1,999 2,769 (27.8) Profitability ratios - annualized: * Return on average assets 1.10% 1.12% (1.6)% Return on tangible assets 1.21 1.23 (1.6) Return on average stated equity (1) 6.01 6.64 (9.6) Return on average tangible equity (2) 12.07 14.06 (14.2) Net interest margin - fully tax equivalent 4.19 4.09 2.4 Shares outstanding at period end: * Common 12,626,042 12,548,843 0.6 (1) Average stated equity is equal to average shareholders' equity. (2) Average tangible equity represents average shareholders' equity less average intangibles and goodwill. Six Months Ended June 30, 2007 2006 % Change Earnings: Net income $10,546 $10,688 (1.3)% Per share statistics: * Diluted earnings $.83 $.85 (2.4)% Dividends declared - common .62 .62 - Book value - common 25.96 25.41 2.2 Book value - tangible 12.83 11.89 7.9 Market value - High 34.49 34.21 0.8 Low 26.67 27.88 (4.3) Financial position at period end: Assets $1,807,454 $1,908,401 (5.3)% Net loans 1,131,198 1,178,251 (4.0) Deposits 1,317,084 1,420,652 (7.3) Shareholders' equity 327,743 318,819 2.8 Average Balances: Assets $1,801,565 $1,913,847 (5.9)% Net loans 1,133,310 1,184,835 (4.3) Deposits 1,304,332 1,411,955 (7.6) Shareholders' equity 329,838 321,662 2.5 Non-Performing Loans at period end: Non-accrual loans $20,717 $22,922 (9.6)% Accruing loans past due 90 days or more 1,999 2,769 (27.8) Profitability ratios - annualized: * Return on average assets 1.17% 1.12% 4.50% Return on tangible assets 1.29 1.23 4.88 Return on average stated equity (1) 6.39 6.65 (3.80) Return on average tangible equity (2) 12.87 14.09 (8.70) Net interest margin - fully tax equivalent 4.19 4.04 3.7 Shares outstanding at period end: * Common 12,626,042 12,548,843 0.6% (1) Average stated equity is equal to average shareholders' equity. (2) Average tangible equity represents average shareholders' equity less average intangibles and goodwill. OMEGA FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands, except share data) (unaudited) June 30, December 31, 2007 2006 Assets Cash and due from banks 59,595 56,225 Interest bearing deposits with other banks 10,553 12,073 Trading securities 57 48 Investment securities available for sale 285,290 291,807 Other investments 12,193 12,087 Investment in unconsolidated subsidiary 1,625 1,625 Loans held for sale - 204 Total portfolio loans 1,144,029 1,152,188 Less: Allowance for loan losses (12,831) (17,344) Net portfolio loans 1,131,198 1,134,844 Premises and equipment, net 29,777 30,861 Other real estate owned 945 512 Bank-owned life insurance 77,627 76,341 Investment in limited partnerships 5,404 5,763 Core deposit intangibles 5,273 5,641 Other intangibles 1,030 1,085 Goodwill 159,408 159,387 Other assets 27,479 27,315 TOTAL ASSETS $1,807,454 $1,815,818 Liabilities and Shareholders' Equity Deposits: Non-interest bearing $234,332 $232,335 Interest bearing 1,082,752 1,093,428 Total deposits 1,317,084 1,325,763 Short-term borrowings 65,382 65,712 ESOP debt 1,288 1,481 Junior subordinated debentures 55,944 56,193 Long-term debt 27,167 27,877 Other interest bearing liabilities 869 858 Other liabilities 11,977 12,723 TOTAL LIABILITIES 1,479,711 1,490,607 Shareholders' Equity Preferred stock, par value $5.00 per share: Authorized - 5,000,000 shares, none issued Common stock, par value $5.00 per share: Authorized - 25,000,000 shares; Issued - 12,860,658 shares at June 30, 2007; 12,823,471 shares at December 31, 2006 64,319 64,133 Outstanding - 12,626,042 shares at June 30, 2007; 12,622,802 shares at December 31, 2006 Capital surplus 103,973 103,149 Retained earnings 167,391 164,653 Accumulated other comprehensive income (86) 313 Unearned compensation related to ESOP debt (716) (859) Cost of common stock in treasury: 234,616 shares at June 30, 2007; 200,669 shares at December 31, 2006 (7,138) (6,178) TOTAL SHAREHOLDERS' EQUITY 327,743 325,211 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,807,454 $1,815,818 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, 2007 2006 2007 2006 Interest Income: Interest and fees on loans $19,900 $20,372 $39,723 $40,209 Interest and dividends on investment securities 3,482 3,077 6,827 6,181 Other interest income 141 241 313 342 TOTAL INTEREST INCOME. 23,523 23,690 46,863 46,732 Interest Expense: Interest on deposits 6,647 6,409 13,099 12,304 Interest on short-term borrowings 676 663 1,399 1,434 Interest on long-term debt and other interest bearing liabilities 1,256 1,248 2,497 2,512 TOTAL INTEREST EXPENSE 8,579 8,320 16,995 16,250 NET INTEREST INCOME 14,944 15,370 29,868 30,482 Provision for loan losses 745 100 1,355 220 INCOME FROM CREDIT ACTIVITIES 14,199 15,270 28,513 30,262 Other Income: Service fees on deposit accounts 2,654 2,598 5,051 4,952 Service fees on loans 430 443 757 825 Earnings on bank-owned life insurance 646 552 1,286 1,159 Trust fees 1,101 1,025 2,194 2,145 Investment and insurance product sales 701 618 1,552 1,542 Gain (loss) on sale of loans and other assets (48) 64 30 121 Net gains on the sale of investment securities (37) 176 338 238 Other 1,291 1,215 2,659 2,381 TOTAL OTHER INCOME 6,738 6,691 13,867 13,363 Other Expense: Salaries and employee benefits 6,882 7,308 14,099 14,793 Net occupancy expense 1,096 1,083 2,151 2,188 Equipment expense 1,195 1,143 2,330 2,271 Data processing service 599 673 1,209 1,318 Pennsylvania shares tax 786 728 1,572 1,440 Amortization of intangible assets 212 222 423 443 Other 3,634 3,870 6,668 7,449 TOTAL OTHER EXPENSE 14,404 15,027 28,452 29,902 Income before income taxes and discontinued operations 6,533 6,934 13,928 13,723 Income tax expense 1,570 1,568 3,382 3,051 Income from continuing operations 4,963 5,366 10,546 10,672 Discontinued operations: Income from discontinued operations, net of tax - 125 - 162 Loss on disposal of discontinued operations, net of tax - (146) - (146) Income (Loss) from discontinued operations - (21) - 16 NET INCOME $4,963 $5,345 $10,546 $10,688 Net income per common share Basic $0.39 $0.43 $0.83 $0.85 Diluted $0.39 $0.42 $0.83 $0.85 Net income per common share from continuing operations Basic $0.39 $0.43 $0.83 $0.85 Diluted $0.39 $0.43 $0.83 $0.85 Net income per common share from discontinued operations Basic $- $- $- $- Diluted $- $- $- $- Weighted average shares and equivalents Basic 12,624 12,572 12,630 12,579 Diluted 12,641 12,616 12,650 12,624 Dividends declared per share Common $0.31 $0.31 $0.62 $0.62 Omega Financial Corporation Consolidated Net Interest Income Analysis Second Quarter 2007 vs. Second Quarter 2006 (In thousands) Second Quarter 2007 Second Quarter 2006 Average Income/ Average Income/ Balance Rate Expense Balance Rate Expense INTEREST EARNING ASSETS Money Market Investments Interest Bearing Deposits 10,781 3.79% 102 11,158 4.13% 115 Federal Funds Sold 2,991 5.36% 39 10,237 4.94% 126 Total Money Market Investments 13,772 4.14% 141 21,395 4.52% 241 Investment Securities U.S. Treasuries and Agencies 272,130 4.57% 3,099 279,381 3.64% 2,537 State and Municipals- Tax Free 1,000 3.20% 8 39,609 2.63% 260 Corporate Securities & Stock 26,222 5.72% 375 19,201 5.83% 280 Total Investment Securities 299,352 4.67% 3,482 338,191 3.65% 3,077 Loans Commercial Loans 239,706 7.60% 4,540 265,236 7.31% 4,835 Tax Free Commercial Loans 17,276 4.88% 210 19,315 4.76% 229 Real Estate Loans 654,687 6.75% 11,046 706,380 6.73% 11,892 Tax Free Real Estate Loans 38,873 4.31% 419 40,507 4.30% 435 Personal Loans and Leases 198,688 7.44% 3,685 164,415 7.27% 2,981 Total Loans 1,149,230 6.94% 19,900 1,195,853 6.82% 20,372 Total Earning Assets 1,462,354 6.45% 23,523 1,555,439 6.10% 23,690 FUNDING SOURCES Interest Bearing Liabilities Checking with Interest 302,067 0.84% 633 314,395 0.73% 572 Money Market Deposits 71,323 1.50% 266 88,131 1.50% 330 Savings Deposits 180,993 0.55% 248 200,977 0.55% 275 CD'S, $100,000 and Over 85,523 4.40% 939 97,755 4.04% 984 Other Time Deposits 439,783 4.16% 4,561 476,046 3.58% 4,248 Total Interest Bearing Deposits 1,079,689 2.47% 6,647 1,177,304 2.18% 6,409 Short-Term Borrowings 65,970 4.11% 676 71,576 3.71% 662 Long-Term Debt 84,997 5.87% 1,247 85,236 5.82% 1,240 Other Interest Bearing Liabilities 853 4.22% 9 806 4.47% 9 Demand Deposits 226,687 238,698 Cash (47,125) (50,685) Other 51,283 32,504 Total Funding Sources 1,462,354 2.35% 8,579 1,555,439 2.14% 8,320 Net Int Spread - Net Int Income 4.10% 14,944 3.96% 15,370 Net Int Spread - Tax Equivalent 4.19% 4.09% Net Int Income - Tax Equivalent 15,287 15,868 Tax Rate 35% 35% Increase/(Decrease) Due To Volume Due To Rate Net Change INTEREST EARNING ASSETS Money Market Investments Interest Bearing Deposits (4) (9) (13) Federal Funds Sold (94) 7 (87) Total Money Market Investments (98) 2 (100) Investment Securities U.S. Treasuries and Agencies (68) 630 562 State and Municipals-Tax Free (299) 47 (252) Corporate Securities & Stock 100 (5) 95 Total Investment Securities (266) 671 405 Loans Commercial Loans (481) 186 (295) Tax Free Commercial Loans (25) 6 (19) Real Estate Loans (881) 35 (846) Tax Free Real Estate Loans (17) 1 (16) Personal Loans and Leases 633 71 704 Total Loans (770) 298 (472) Total Earning Assets (1,136) 969 (167) FUNDING SOURCES Interest Bearing Liabilities Checking with Interest (23) 84 61 Money Market Deposits (64) 0 (64) Savings Deposits (27) 0 (27) CD'S, $100,000 and Over (129) 84 (45) Other Time Deposits (340) 653 313 Total Interest Bearing Deposits (583) 820 237 Short-Term Borrowings (54) 67 13 Long-Term Debt (4) 12 8 Other Interest Bearing Liabilities 1 (1) - Demand Deposits Cash Other Total Funding Sources (640) 899 259 Net Int Spread - Net Int Income (496) 70 (426) Net Int Spread - Tax Equivalent Net Int Income - Tax Equivalent Tax Rate DATASOURCE: Omega Financial Corporation CONTACT: Teresa Ciambotti, SVP, Director of Investor Relations of Omega Financial Corporation, +1-814-231-6401 Web site: http://www.omegafinancial.com/

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