RESULTS OF OPERATIONS
(Comparison of December 31, 2005 and 2004 results)

General

Net income for the year ended December 31, 2005, was up 8.1% to $27.7 million, compared to $25.6 million in 2004. On a per share basis, the Company earned $3.05 per diluted share in 2005, compared to $2.81 per diluted share in 2004. In addition to earnings per share growth, key performance measurements for the Company include return on average shareholders' equity (ROE) and return on average assets (ROA). ROE was 15.82% in 2005, compared to 15.68% in 2004, while ROA was 1.36% in 2005, up from 1.32% in 2004. ROA and ROE for Tompkins continue to compare favorably to bank holding company peer ratios widely available from the Federal Reserve Board.

The favorable performance in 2005 over 2004 reflects continued execution of the Company's key business strategies, including a commitment to community banking through diversified revenue sources consisting of net interest income generated from the loan and securities portfolios, trust and investment services income, insurance commissions and fees, and other service charges and fees for providing banking and related financial services. Evidence of the success of these strategies includes the 8.5% growth in total loans and the 3.9% growth in core deposits (total deposits less time deposits of $100,000 and more, brokered deposits, and municipal money market deposits) from December 31, 2004 to December 31, 2005, as well as growth in key fee income categories as discussed below. Noninterest income also benefited from the Company's recent agreement with NOVA Information Systems (NOVA) to transfer customer service, processing services, and support operations for all merchant card processing customers. The agreement calls for NOVA to receive all future revenue from the Company's current merchant customers, and resulted in a pre-tax net gain of approximately $3.0 million in the fourth quarter. Tompkins will continue to generate referral fees and income based on a percentage of net sales revenue from new customers referred to NOVA.

An interest rate environment of rising short-term rates and stable long-term rates made 2005 a challenging year. Increases in the yields on the Company's average earning assets were offset by increases in the Company's cost of funds, resulting in a flat net interest margin for the year when compared to 2004. Year-over-year loan growth of 8.5% was a key factor contributing to the 5.2% increase in net interest income to $75.0 million in 2005.

Asset quality remained strong with reductions in nonperforming assets and net charge-offs compared with prior year. Nonperforming assets of $4.5 million at December 31, 2005, are down from $7.7 million at December 31, 2004. Net loan/lease charge-offs improved to $1.5 million in 2005 from $2.0 million in 2004.

Noninterest income for 2005 was $30.8 million, an increase of 10.0% over 2004. The growth trends for key fee generating business activities were positive for the year. Insurance commissions and fees were $7.5 million, up 17.3% from prior year; service charges on deposit accounts were $8.3 million, up 3.4%; and trust and investment services income was $5.3 million, up 1.5%.

Noninterest expenses were $62.1 million in 2005, up 6.7% over 2004. These increases were primarily due to higher compensation and benefits related expenses, which were up $2.2 million for the year-to-date period. The acquisition of Banfield & Associates, Inc., effective December 31, 2004, contributed to the increased personnel costs in 2005 over 2004.

Net Interest Income

Table 1-Average Statements of Condition and Net Interest Analysis illustrates the trend in average interest-earning assets and interest-bearing liabilities, and the corresponding yield or cost associated with each. Taxable-equivalent net interest income improved to $77.9 million in 2005, up 5.3% from $73.9 million in 2004. Taxable-equivalent net interest income benefited from growth in average earning assets and growth in deposits. The Federal Reserve continued to raise short-term interest rates in 2005, which contributed to a 200 basis point increase in the prime rate in 2005. The higher prime rate had a favorable impact on commercial loan yields as the Company's prime rate based loans repriced upwards. The higher short-term interest rates also led to increased funding costs as rates on deposits and borrowings moved upwards. While short-term rates rose, the spread between long-term and short-term rates narrowed as longer-term rates did not increase in line with short-term rates. The yield on average earning assets increased 38 basis points from 5.40% for the fiscal year ended December 31, 2004, to 5.78% for fiscal 2005, while the cost of interest bearing liabilities increased 49 basis points from 1.60% to 2.09% over the same time period, resulting in an 11 basis point decline in the net interest spread. Growth in noninterest-bearing liabilities offset some of the decline in the spread resulting in a tax-equivalent net interest margin that is unchanged from 2004.

Taxable-equivalent interest income was up 12.6% over the same period prior year, driven by an increase in the loan volumes and yields. Average loans grew by $103.1 million, or 9.2%, which included a $58.2 million increase in average commercial real estate loans, a $39.0 million increase in average residential loans, and a $14.5 million increase in average commercial loans. Yields on commercial and industrial loans, and commercial real estate loans benefited from increases in market interest rates. Home equity loan yields were also higher as initial introductory rates repriced to fully indexed rates.

Increases in taxable-equivalent interest income were partially offset by a 35.8% increase in interest expense driven by the rise in short-term market interest rates. Rates on time deposits moved higher with the rise in short-term rates and resulted in an increased volume of these deposits. Core deposits, which include demand deposits, savings accounts, non-municipal money market accounts, and time deposits less than $100,000, represent the Company's largest and lowest cost funding source. Average core deposits increased by $46.0 million or 3.9%, to $1.2 billion in 2005, providing funding to support average earning asset growth. Core deposit growth included a $26.3 million or 8.9% increase in average noninterest-bearing deposits, from $297.6 million in 2004 to $324.0 million in 2005.

Non-core funding sources, which include time deposits of $100,000 or more, brokered deposits, municipal money market deposits, Federal funds purchased, securities sold under repurchase agreements, and other borrowings provided additional sources of funding to support asset growth. Average balances on these non-core funding sources increased by $39.8 million from $578.2 million at year-end 2004, to $618.0 million at year-end 2005. Average time deposits of $100,000 or more increased by $86.2 million to $224.2 million at year-end 2005. Upward movement in time deposit interest rates beginning in the latter half of 2004 contributed to the growth in this deposit category. Growth in core and non-core deposits allowed for a reduction in average borrowings and securities sold under repurchase agreements from 2004 to 2005.

Changes in net interest income occur from a combination of changes in the volume of interest-earning assets and interest-bearing liabilities, and in the rate of interest earned or paid on them. Table 2-Analysis of Changes in Net Interest Income illustrates changes in interest income and interest expense attributable to changes in volume (change in average balance multiplied by prior year rate), changes in rate (change in rate multiplied by prior year volume), and the net change in net interest income. The net change attributable to the combined impact of volume and rate has been allocated to each in proportion to the absolute dollar amounts of the change. The $3.9 million increase in taxable-equivalent net interest income from 2004 to 2005 resulted from a $12.3 million increase in interest income and an $8.4 million increase in interest expense. An increased volume of earning assets contributed to a net $4.7 million increase in taxable-equivalent net interest income between 2004 and 2005, while changes in interest rates reduced taxable-equivalent net interest income by $800,000, resulting in the net increase of $3.9 million.

                                                                             December 31
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                                                2005                              2004                             2003
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                                   Average               Average     Average               Average     Average             Average
(dollar amounts in thousands)      Balance    Interest  Yield/Rate   Balance    Interest  Yield/Rate   Balance   Interest Yield/Rate
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ASSETS
Interest-earning assets:
   Certificates of deposit,
     other banks                 $    3,668  $       89     2.43%  $    9,086  $       93     1.02%  $    2,829  $      27     0.95%
   Securities (1)
         U.S. Government
           securities               529,732      20,805     3.93      544,943      21,317     3.91      478,356     18,786     3.93
         State and municipal (2)    120,891       6,882     5.69      102,917       6,081     5.91       89,308      5,712     6.40
         Other securities (2)        21,072         905     4.29       24,953         566     2.27       29,649        827     2.79
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         Total securities           671,695      28,592     4.26      672,813      27,964     4.16      597,313     25,325     4.24
    Federal funds sold                  818          24     2.93        2,281          25     1.14        1,545         16     1.04
    Loans, net of unearned
       income (3)
          Residential real estate   465,124      27,042     5.81      426,116      24,121     5.66      408,084     24,995     6.12
          Commercial real estate    349,190      23,923     6.85      290,959      19,015     6.54      235,691     16,345     6.93
          Commercial loans (2)      287,455      20,238     7.04      272,954      15,745     5.77      260,628     15,731     6.04
          Consumer and other        102,845       8,649     8.41      105,095       8,886     8.46      103,273      9,415     9.12
          Lease financing (2)        15,402         988     6.41       21,841       1,426     6.53       22,623      1,568     6.93
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          Total loans, net of
            unearned income       1,220,016      80,840     6.63    1,116,965      69,193     6.19    1,030,299     68,054     6.61
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          Total interest-
            earning assets        1,896,197     109,545     5.78    1,801,145      97,275     5.40    1,631,986     93,422     5.72
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Noninterest-earning assets          141,843                           138,078                           137,762
          Total assets           $2,038,040                        $1,939,223                        $1,769,748

===================================================================================================================================

LIABILITIES & SHAREHOLDERS' EQUITY
Deposits:
     Interest-bearing deposits
       Interest checking,
         savings, and money
         market                  $  733,596  $    7,519     1.02%  $  774,989  $    5,527     0.71%  $  726,619  $   5,871     0.81%
       Time Deposits > $100,000     224,248       6,973     3.11      138,056       2,890     2.09      112,752      2,782     2.47
       Time Deposits < $100,000     290,370       7,943     2.74      256,612       5,954     2.32      249,722      6,702     2.68
       Brokered Time Deposits:
                     < $100,000      38,545       1,228     3.19       29,691         853     2.87       23,424        788     3.36
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        Total interest-
          bearing deposits        1,286,759      23,663     1.84    1,199,348      15,224     1.27    1,112,517     16,143     1.45
Federal funds purchased and
     securities sold under
     agreements to repurchase       157,817       4,852     3.07      175,168       4,390     2.51      132,957      3,285     2.47
Other borrowings                     70,486       3,171     4.50       81,213       3,713     4.57       88,693      4,065     4.58
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        Total interest-
          bearing liabilities     1,515,062      31,686     2.09    1,455,729      23,327     1.60    1,334,167     23,493     1.76
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Noninterest-bearing deposits        323,976                           297,627                           261,691
Accrued expenses and other
  liabilities                        22,533                            21,002                            20,108
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        Total liabilities         1,861,571                         1,774,358                         1,615,966
Minority Interest                     1,483                             1,511                             1,519
Shareholders' equity                174,986                           163,354                           152,263
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        Total liabilities and
          shareholders' equity   $2,038,040                        $1,939,223                        $1,769,748
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Interest rate spread                                        3.69%                             3.80%                            3.96%
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Net interest income/margin
     on earning assets                       $   77,859     4.11%              $   73,948     4.11%              $  69,929     4.28%
===================================================================================================================================

(1) Average balances and yields on available-for-sale securities are based on amortized cost.

(2) Interest income includes the tax effects of taxable-equivalent adjustments using a combined New York State and Federal effective income tax rate of 40% to increase tax-exempt interest income to a taxable equivalent basis. The tax equivalent adjustments for 2005, 2004, and 2003 were as follows: $2,838,000, $2,602,000, and $2,427,000, respectively.

(3) Nonaccrual loans are included in the average loan totals presented above. Payments received on nonaccrual loans have been recognized as disclosed in "Note 1 Summary of Significant Accounting Policies" in the Notes to Consolidated Financial Statements in Part II, Item 8. of this Report.

(in thousands)(taxable equivalent)                2005 vs. 2004                             2004 vs. 2003
-----------------------------------------------------------------------------------------------------------------------
                                      Increase (Decrease) Due to Change in      Increase (Decrease) Due to Change in
                                                     Average                                   Average

                                         Volume         Rate          Total        Volume         Rate          Total
-----------------------------------------------------------------------------------------------------------------------
INTEREST INCOME:
Certificates of deposit, other banks   $      (79)   $       75    $       (4)   $       64    $        2    $       66
Federal funds sold                            (24)           23            (1)            8             1             9
Investments:
    Taxable                                  (744)          571          (173)        2,378          (102)        2,276
    Tax-exempt                              1,029          (228)          801           826          (463)          363
Loans, net:
    Taxable                                 6,692         5,014        11,706         5,357        (4,324)        1,033
    Tax-exempt                                (61)            2           (59)          174           (68)          106
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Total interest income                  $    6,813    $    5,457    $   12,270    $    8,807    $   (4,954)   $    3,853
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INTEREST EXPENSE:
Interest-bearing deposits:
    Interest checking,
      savings, and money market              (309)        2,301         1,992           374          (718)         (344)
    Time                                    3,370         3,077         6,447           964        (1,539)         (575)
Federal funds purchased and
    Securities sold under
    agreements to repurchase                 (465)          927           462         1,057            48         1,105
Other borrowings                             (484)          (58)         (542)         (342)          (10)         (352)
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Total interest expense                 $    2,112    $    6,247    $    8,359    $    2,053    $   (2,219)   $     (166)
-----------------------------------------------------------------------------------------------------------------------
Net interest income                    $    4,701    $     (790)   $    3,911    $    6,754    $   (2,735)   $    4,019
=======================================================================================================================

Notes: See notes to Table 1 above.

Provision for Loan/Lease Losses

The provision for loan/lease losses represents management's estimate of the expense necessary to maintain the reserve for loan/lease losses at an adequate level. Management has developed a model to measure the amount of estimated loan loss exposure inherent in the loan portfolio to ensure that an adequate reserve is maintained. The provision for loan/lease losses was $2.7 million in 2005, compared to $2.9 million in 2004. The decrease in 2005 is primarily due to positive trends in asset quality measures. Nonperforming loans/leases were $4.1 million or 0.33% of total loans/leases at December 31, 2005, compared with $7.6 million or 0.65% of total loans/leases at December 31, 2004. The improvement in nonperforming loans/leases benefited from the return to accruing status of a large commercial credit based on an improved financial position. Net charge-offs of $1.5 million in 2005 represented 0.13% of average loans/leases during the period, compared to net charge-offs of $2.0 million in 2004, representing 0.18% of average loans/leases. See the section captioned "The Reserve for Loan/Lease Losses" included within in "Management's Discussion and Analysis of Financial Condition and Results of Operations-Financial Condition" of this Report for further analysis of the Company's reserve for loan/lease losses.

Noninterest Income

The Company considers noninterest income an important driver of long-term revenue growth and a way to reduce earnings volatility that may result from changes in general market interest rates. Total noninterest income was $30.8 million in 2005, an increase of 10.0% over 2004. Sources of noninterest income include insurance fees and commissions, service charges on deposit accounts, trust and investment services, and card services products. The Company has been able to expand the contribution of noninterest income to total revenues by developing and introducing new products and by marketing its services across all of the Company's markets. Noninterest income represented 29.1% of total revenue in 2005, compared with 28.2% in 2004.

In late 2005, the Company entered into an agreement with NOVA Information Systems (NOVA) to transfer customer service, processing services, and support operations for all merchant card processing customers. The agreement calls for NOVA to receive all future revenue from the Company's current merchant customers, and resulted in a pre-tax net gain of approximately $3.0 million in the fourth quarter of 2005. The Company will continue to generate referral fees and income based on a percentage of net sales revenue from new customers referred to NOVA. The transaction will have a negative impact on future revenue of approximately $300,000, but will have a nominal impact on future net income. The agreement with NOVA will provide the Company's customers with improved technology for merchant card processing that is available through economies of scale that NOVA has as one of the largest merchant processing companies in the country.

The Company's agreement with NOVA will also allow the Company to increase its focus on other fee income businesses such as investment services, wealth management, brokerage services, and insurance.

Service charges on deposit accounts were up $269,000 or 3.4% to $8.3 million in 2005, compared to $8.0 million in 2004. An increase in the number of transaction accounts, fee increases, and additional deposit services contributed to the growth in service charges on deposit accounts in 2005 over 2004. The average dollar volume of noninterest-bearing accounts increased by 8.9% between 2004 and 2005, from $297.6 million to $324.0 million. The largest component of service charges on deposit accounts is overdraft fees. Overdraft fees over the past several years have benefited from the implementation of an automated overdraft payment program in mid-2002 for personal accounts. This overdraft program was expanded in mid-2004 to encompass a broader customer base, including commercial accounts.

Insurance commissions and fees were $7.5 million in 2005, an increase of $1.1 million or 17.3% over 2004. Tompkins Insurance Agencies' acquisition of the Banfield & Associates, Inc., an insurance agency in Ithaca, New York, at year-end 2004 contributed to the growth in commission income in 2005 over 2004. This acquisition also provides an opportunity to offer insurance services to the customers of Tompkins Trust Company. Additionally, Tompkins Insurance Agencies has continued its efforts to offer services to customers of The Bank of Castile. These efforts include locating Tompkins Insurance Agencies representatives in offices of The Bank of Castile. Tompkins Insurance currently shares 7 office locations with The Bank of Castile and plans to add representatives to other offices in 2005.

Trust and investment services generated $5.3 million in revenue in 2005, an increase of 1.5% over revenue of $5.2 million in 2004. With fees largely based on the market value and mix of assets managed, the general direction of the stock market can have a considerable impact on fee income. The market value of assets managed by, or in custody of, Tompkins Investment Services was $1.5 billion at December 31, 2005, up 2.6% from December 31, 2004. These figures include $435.2 million and $413.8 million, respectively, of Company-owned securities where Tompkins Investment Services is custodian. Tompkins Investment Services generates fee income through managing trust and investment relationships, managing estates, providing custody services, and managing investments in employee benefits plans. Services are primarily provided to customers in the Trust Company's market area of Tompkins County; however, Tompkins Investment Services representatives also serve clients in The Bank of Castile and Mahopac National Bank markets. Trends for new business in trust and investments services remain positive. The number of accounts increased by 7.5% between December 31, 2005, and December 31, 2004.

Card services income of $2.6 million in 2005 was up $174,000 or 7.0% over income of $2.5 million in 2004. An increased number of cardholders and higher transaction volume contributed to the growth in card services income in 2005. Card services have been a strong contributor to revenues as technology has created opportunities to better serve customers with new products. Card services products include traditional credit cards, purchasing cards, debit cards, and automated teller machines (ATM).

Noninterest income also includes $1.1 million from increases in cash surrender value of corporate owned life insurance (COLI), down from $1.2 million in 2004. The COLI relates to life insurance policies covering certain senior officers of the Company and its subsidiaries. Increases in the cash surrender value of the insurance are reflected as other noninterest income, net of the related mortality expense. The Company's average investment in COLI was $25.8 million during 2005, compared to $23.3 million during 2004. The Company purchased about $2.1 million in additional COLI in 2005. Although income associated with the insurance policies is not included in interest income, increases in the cash surrender value produced a tax-adjusted return of approximately 7.08% in 2005, 8.53% in 2004, and 7.67% in 2003.

The $169,000 increase in other income in 2005 over 2004 was largely driven by a $207,000 gain on sale of real estate. In 2004, The Bank of Castile relocated its Warsaw Office to a newly renovated building. The former Warsaw Office building was sold in 2005 for a gain of $207,000.

The Company has an investment in a small business investment company partnership, Cephas Capital Partners, L.P. ("Cephas"), totaling $3.4 million at December 31, 2005 and December 31, 2004. Because the Company's percentage ownership in Cephas exceeds 20%, the equity method of accounting is utilized, such that the Company's percentage of Cephas' income is recognized as income on its investment; and likewise, any loss by Cephas is recognized as a loss on the Company's investment. For 2005, the Company recognized income from this investment of $333,000 compared with income of $381,000 in 2004. The Company believes that as of December 31, 2005, there is no impairment with respect to this investment.

In late 2005, the Company sold approximately $80 million of available-for-sale securities as part of a portfolio restructuring that resulted in a pre-tax loss of approximately $1.5 million. Proceeds from the sale have been primarily used to acquire higher-yielding securities, which is expected to have a positive impact on interest income in future periods.

Noninterest Expense

Noninterest expenses for the year ended December 31, 2005, were $62.1 million, an increase of 6.7% over noninterest expenses of $58.2 million for the year ended December 31, 2004. Changes in the various components of noninterest expense are discussed below.

Personnel-related expenses comprise the largest segment of noninterest expense, representing 58.2% of noninterest expenses in 2005, compared to 58.4% in 2004. Total personnel-related expenses increased by $2.2 million or 6.4% in 2005, to $36.1 million from $34.0 million. The increase in personnel-related expenses is

concentrated in salaries and wages and reflects an increased number of employees and salary increases. Average full-time equivalents (FTEs) increased from 578 for the year ended December 31, 2004, to 584 for the year ended December 31, 2005. Tompkins Insurance Agencies' acquisition of Banfield & Associates, Inc. in late 2004 contributed to the increase in FTEs. Also included in 2005 salaries and wages was $63,000 resulting from the decision to accelerate unvested stock options for all non-executives in late 2005. The change in accounting rules for accounting for stock options will result in an increase in personnel related expenses in 2006 and future years. Stock option expense related to unvested stock options outstanding at December 31, 2005, is expected to be approximately $417,000 (pre-tax) in 2006. Option grants made after December 31, 2005 will add additional expense under FASB's new accounting standard SFAS No. 123R, "Share-Based Payments" as discussed in "Management's Discussion and Analysis of Financial Condition and Results of Operations-Recent Accounting Standards" and in "Note 1 Summary of Significant Accounting Policies" in Notes to Consolidated Financial Statements in Part II, Item 8. of this Report.

Also included in personnel-related expenses are post-retirement benefits, which were also up over prior year. Post-retirement benefits expense did benefit from a change in the Company's post-retirement health care plan during 2005. Refer to "Note 11 Employee Benefit Plans" in Notes to Consolidated Financial Statements in Part II, Item 8. of this Report. The calculation of the expenses and liability related to pensions and post-retirement benefits requires estimates and assumptions of key factors including, but not limited to, discount rate, return on plan assets, future salary increases, and life expectancies of plan participants. Management considers its accounting policy for pensions and post-retirement benefits to be a critical accounting policy given the assumptions that are required. The Company uses an actuarial firm in making these estimates and assumptions. Changes in these assumptions due to market conditions, governing laws and regulations, or Company specific circumstances may result in material changes to the Company's post-retirement expenses and liabilities.

Expense for premises, furniture, and fixtures totaled $7.7 million in 2005, an increase of $569,000 or 8.0% over expense of $7.1 million in 2004. Recent additions to the Company's branch network, including the Mount Kisco office of Mahopac National Bank, which opened in July 2004, and the opening of the Tompkins Financial Center in Batavia, New York, in early 2005, as well as higher real estate taxes, insurance and utility costs contributed to the increased expenses for bank premises and furniture and fixtures year-over-year.

Marketing expense is up 16.1% in 2005 over 2004. Planned marketing initiatives for 2005 accounted for the increase in marketing expenditures over the prior year.

Professional fees totaled $1.5 million in 2005 compared with $1.7 million in 2004. The $184,000 or 11.1% decline in this category is mainly a result of lower expenses related to the Company's compliance with the internal control over financial reporting requirements under Section 404 of the Sarbanes-Oxley Act. External costs for professional services related to the implementation and compliance with Section 404 were $618,000 in 2004, whereas ongoing compliance costs in 2005 included the addition of one staff position and $185,000 in costs related to external professional services.

Software licenses and maintenance expenses were $1.8 million, an increase of $325,000 or 22.4% over 2004. Increases in annual maintenance contracts contributed to the increase in this category, as did expenses related to the implementation of new systems.

Other operating expenses totaled $10.9 million in 2005, which is up 7.1% over the same period in 2004. The increase was distributed across the following expense categories: business development, printing and supplies, software amortization, audits and examinations, and education and training.

The Company's efficiency ratio, defined as operating expense excluding amortization of intangible assets, divided by tax-equivalent net interest income plus noninterest income before securities gains and losses (increase in the cash surrender value of COLI is shown on a tax equivalent basis), was 55.5% in 2005, compared to 56.1% in 2004. Tax equivalency was based upon a 40% tax rate. Excluding the tax equivalent adjustments for tax-exempt securities, tax-exempt loans/leases, and COLI income, the efficiency ratio would be 57.3% in 2005 and 58.0% in 2004.

Minority Interest in Consolidated Subsidiaries

Minority interest expense represents the portion of net income in consolidated majority-owned subsidiaries that is attributable to the minority owners of a subsidiary. The Company had minority interest expense of $131,000 in 2005 compared to $133,000 in 2004, related to minority interests in three real estate investment trusts, which are substantially owned by the Company's banking subsidiaries.

Income Tax Expense

The provision for income taxes provides for Federal and New York State income taxes. The 2005 provision was $13.2 million, compared to $12.5 million in 2004. The increase was primarily due to a higher level of taxable income. The effective tax rate for the Company decreased in 2005 to 32.3%, from 32.8% in 2004. The decrease in the effective rate in 2005 compared with 2004 is due to higher levels of tax-advantaged income, such as income from investments in municipal bonds, economic zone credits, and new market tax credits as well as additional investments in real estate investment trusts in 2005. Legislation has been proposed at the State level that would change the tax treatment of dividends paid by real estate investment trusts ("REIT") and reduce the State

tax rate for financial institutions to 6.5%. Each of the Company's banking subsidiaries is a majority owner in a REIT. If the law is passed in its current form, the expected impact on the Company would be an increased tax expense of approximately $632,000.

RESULTS OF OPERATIONS
(Comparison of December 31, 2004 and 2003 results)

General

Net income for the year ended December 31, 2004, was up 5.8% to $25.6 million, compared to $24.2 million in 2003. On a per share basis, the Company earned $2.81 per diluted share in 2004, compared to $2.66 per diluted share in 2003. In addition to growth in earnings per share, key performance measurements for the Company, include return on average shareholders' equity (ROE) and return on average assets (ROA). ROE was 15.68% in 2004, compared to 15.90% in 2003, while ROA was 1.32% in 2004, down from 1.37% in 2003. The declines in ROA and ROE reflect the fact that total assets and total equity grew more rapidly in 2004 than did net income. Despite modest declines in these performance measures, ROA and ROE for Tompkins continue to compare favorably to bank holding company peer ratios widely available from the Federal Reserve Board.

The low interest rate environment in 2003 and 2004 and the narrow spread between short-term rates and long-term rates made 2004 a challenging year. Over the past two years, yields on the Company's earning assets have moved downward more rapidly than the interest cost on the Company's interest-bearing liabilities. Consequently, the Company experienced a compression of its net interest margin over the past two years. To offset the effects of a compressed net interest margin, the Company focused on growing its earning asset base, including both loans and securities, and on expanding its fee based revenue streams. The Company was successful in growing its loans portfolio by 9.6% and its core deposits (time deposits less time deposits of $100,000 or more, brokered deposits and municipal money market deposits) by 6.7% year-over-year and expanding its key fee income categories as discussed below.

Net Interest Income

Table 1-Average Statements of Condition and Net Interest Analysis above illustrates the trend in average interest-earning assets and interest-bearing liabilities, and the corresponding yield or cost associated with each. Taxable-equivalent net interest income improved to $73.9 million in 2004, up from $69.9 million in 2003. Taxable-equivalent net interest income benefited from growth in earning assets, an improved mix of earning assets, and growth in deposits. The 125 basis point increase in the prime rate in 2004 had a favorable impact on commercial loan yields as the Company's prime rate based loans repriced upwards. The low interest rate environment and the narrower spread between short-term rates and long-term rates resulted in a decrease in the net interest margin from 4.28% in 2003, to 4.11% in 2004. The yield on average earning assets decreased from 5.72% for the fiscal year ended December 31, 2003, to 5.40% for fiscal 2004. The cost of interest bearing liabilities decreased from 1.76% to 1.60% over the same time period.

Average earning assets increased by $169.2 million or 10.4% in 2004, from $1.6 billion to $1.8 billion. Growth in average earning assets included growth in both loans and securities. Average loans grew by $86.7 million, which included a $73.3 million increase in average real estate loans, a $12.3 million increase in average commercial loans, and a $1.8 million increase in consumer and other loans. The 2004 growth in real estate loans is net of $14.7 million of loan sales to Federal agencies.

Average securities (excluding changes in unrealized gains and losses on available-for-sale securities) increased by $75.5 million between 2003 and 2004. Growth in the securities portfolio includes a $35.2 million increase in average U.S. Government mortgage-backed securities, a $31.3 million increase in average U.S. Government agency securities, and a $13.6 million increase in municipal securities. The upward movement in interest rates in 2004 contributed to slower prepayments on mortgage-backed securities in 2004 than in 2003. Consequently, premium amortizations on mortgage-backed securities were lower in 2004 than in 2003. For the year ended December 31, 2004, net premium/discount amortizations on securities totaled $2.2 million compared with $3.9 million in 2003.

Core deposits, which include demand deposits, savings accounts, non-municipal money market accounts, and time deposits less than $100,000, represent the Company's largest and lowest cost funding source. Average core deposits increased by 8.2% from $1.1 billion in 2003 to $1.2 billion in 2004, providing funding support for average earning asset growth. Core deposit growth included a $35.9 million or 13.7% increase in noninterest bearing deposits from $261.7 million to $297.6 million. Additions to the Company's branch network contributed to the increase in deposits.

Non-core funding sources, which include time deposits of $100,000 or more, brokered deposits, municipal money market deposits, Federal funds purchased, securities sold under repurchase agreements, and other borrowings provided additional sources of funding to support asset growth. Average balances on these non-core funding sources increased by $68.1 million from $510.1 million at year-end 2003, to $578.2 million at year-end 2004. A primary component of non-core funding sources for the Company is municipal money market accounts with an average balance of $154.1 million during 2004, compared with $152.3 million during 2003. Average time deposits of $100,000 or more increased by $25.3 million to $138.1 million at year-end 2004. There was some upward movement in interest rates on some time deposit categories during the latter half of 2004, which contributed to the growth in this deposit category. The Company has used borrowings, mainly securities sold under agreements to repurchase with the Federal Home Loan Bank (FHLB), to fund asset growth. The Company used FHLB advances to fund purchases of investment securities and was able to capitalize on the spread between the yield earned on the investment securities and the cost of the FHLB advances. While these transactions benefited net interest income, the lower yielding investment securities relative to loan yields had a negative effect on net interest margin.

Table 2-Analysis of Changes in Net Interest Income above illustrates changes in interest income and interest expense attributable to changes in volume (change in average balance multiplied by prior year rate), changes in rate (change in rate multiplied by prior year volume), and the net change in net interest income. The net change attributable to the combined impact of volume and rate has been allocated to each in proportion to the absolute dollar amounts of the change. The $4.0 million increase in taxable-equivalent net interest income from 2003 to 2004 included a $3.8 million increase in interest income and a $200,000 decrease in interest expense. An increased volume of earning assets contributed to a $6.7 million increase in taxable-equivalent net interest income between 2003 and 2004, while changes in interest rates reduced taxable-equivalent net interest income by $2.7 million, resulting in the net increase of $4.0 million.

Provision for Loan/Lease Losses

The provision for loan/lease losses was $2.9 million in 2004, compared to $2.5 million in 2003. The increase in 2004 was primarily due to continued growth in the loan/lease portfolio, as well as the changing composition of the loan/lease portfolio, which includes increased levels of commercial loans and commercial real estate loans. Nonperforming loans/leases were $7.6 million at December 31, 2004, representing 0.65% of total loans/leases. Nonperforming loans/leases were $7.6 million at December 31, 2003, representing 0.71% of total loans/leases. Net charge-offs of $2.0 million in 2004 represented 0.18% of average loans/leases during the period, compared to net charge-offs of $2.5 million in 2003, representing 0.24% of average loans/leases. The weakness in the Western New York economy contributed to the $2.0 million in net loan/lease charge-offs in 2004 and the $2.5 million in net loan/lease charge-offs in 2003.

Noninterest Income

Noninterest income for 2004 was $28.0 million, an increase of 10.8% over 2003. Growth in noninterest income was moderated by the fact that 2003 results included $970,000 in gains on the sales of loans, compared to $240,000 in gains on the sales of loans in 2004. The growth trends for key fee generating business activities were positive for the year. The Company increased its noninterest income to 28.2% of total revenue in 2004, from 27.2% in 2003.

Trust and investment services generated $5.2 million in revenue in 2004, an increase of 20.5% over revenue of $4.3 million in 2003. Solid new business generation and generally better equity market conditions contributed to the increase in trust fee income. The market value of assets managed by, or in custody of, Tompkins Investment Services increased by $105.3 million or 7.6% to $1.5 billion at December 31, 2004, from $1.4 billion at December 31, 2003. Strong estate management fees in 2004 also contributed to the revenue growth.

Service charges on deposit accounts were up $767,000 or 10.6% to $8.0 million in 2004, compared to $7.2 million in 2003. An increase in the number of transaction accounts, fee increases, and additional deposit services contributed to the growth in service charges on deposit accounts in 2004 over 2003. The average dollar volume of noninterest-bearing accounts increased by $35.9 million between 2003 and 2004, from $261.7 million to $297.6 million, while interest-bearing checking, savings and money market accounts increased by $48.4 million over the same period, from $726.6 million to $775.0 million. Overdraft fees, the largest component of service charges on deposit accounts, benefited from the implementation of an automated overdraft payment program in mid-2002 for personal accounts. This overdraft program was expanded in mid-2004 to encompass a broader customer base, including commercial accounts.

Insurance commissions and fees were $6.4 million in 2004, an increase of $1.1 million or 21.1% over 2003. Tompkins Insurance Agencies' acquisition of an insurance agency in late 2003 contributed to the growth in commission income in 2004 over 2003. Additionally, Tompkins Insurance Agencies continued its efforts to offer services to customers of The Bank of Castile by locating Tompkins Insurance Agencies representatives in offices of The Bank of Castile. Tompkins Insurance shared 4 office locations with The Bank of Castile. Tompkins Insurance's late 2004 acquisition of Banfield & Associates, a small insurance agency in Ithaca, New York, provided an opportunity to offer insurance services to the customers of Tompkins Trust Company.

Card services income of $2.5 million in 2004 was up $198,000 or 8.7% over income of $2.3 million in 2003. An increased number of cardholders and higher transaction volume contributed to the growth in card services income in 2004. Card services have been a strong contributor to revenues as technology has created opportunities to better serve customers with new products.

Noninterest income also includes $1.2 million from increases in cash surrender value of corporate owned life insurance (COLI), up from $1.0 million in 2003. The increase in earnings in 2004 compared to 2003 reflects improved returns on the insurance assets and the payoff of certain loans against these policies. The Company's average investment in COLI was $23.3 million during 2004, compared to $22.0 million during 2003. The Company repaid approximately $449,000 of policy loans in 2003. Although income associated with the insurance policies is not included in interest income, increases in the cash surrender value produced a tax-adjusted return of approximately 8.53% in 2004, 7.67% in 2003, and 9.08% in 2002.

Net gains from loan sales fell significantly in 2004, as the interest rate environment was not as favorable for loan originations and sales as that in 2003. Loans sold in the secondary market are typically longer term fixed rate residential mortgage loans. With the rising interest rate environment, fixed rate loan production including the refinancing of loans currently serviced by the Company slowed considerably in 2004, resulting in a lower volume of loan sales. The volume of loan sales fell from $52.6 million in 2003 to $14.7 million in 2004, while net gains on loan sales totaled $240,000 in 2004 compared to $970,000 in 2003.

The Company has an investment in a small business investment company partnership, Cephas Capital Partners, L.P. ("Cephas"), totaling $3.4 million at December 31, 2004, a decrease from $3.5 million at December 31, 2003. For 2004, the Company recognized income from this investment of $381,000 compared with income of $350,000 in 2003. The Company believes that as of December 31, 2004, there is no impairment with respect to this investment.

Noninterest Expense

Noninterest expenses for the year ended December 31, 2004, were $58.2 million, an increase of 8.1% over noninterest expenses of $53.9 million for the year ended December 31, 2003. Changes in the various components of noninterest expense are discussed below.

Personnel-related expenses comprise the largest segment of noninterest expense, representing 58.4% of noninterest expenses in 2004, compared to 57.5% in 2003. Total personnel-related expenses increased by $3.0 million or 9.8% in 2004, to $34.0 million from $31.0 million. The increase in personnel-related expenses is mainly concentrated in salaries and wages and reflects an increased number of employees and salary increases. Average full-time equivalents (FTEs) increased from 546 for the year ended December 31, 2003, to 578 for the year ended December 31, 2004. The increase in employees is associated primarily with staffing of new offices, including the Auburn, New York office (July 2003) of the Trust Company and the Mt. Kisco, New York office (June 2004) of Mahopac National Bank, and Tompkins Insurance Agencies' acquisition of Youngs & Linfoot, Inc., a small insurance agency, in late 2003.

Expense for premises, furniture, and fixtures totaled $7.1 million in 2004, an increase of $472,000 or 7.1% over expense of $6.7 million in 2003. The additions to the Company's branch network mentioned above, as well as higher taxes, insurance and utilities contributed to the increase in bank premises and furniture and fixture expense.

External expenses related to the Company's efforts to comply with Section 404 of the Sarbanes-Oxley Act totaled $618,000 in 2004 compared with $50,000 in 2003. Approximately $405,000 of the $618,000 was included in professional fees and contributed to the increase in professional fees from $869,000 in 2003 to $1.7 million in 2004. The remaining $213,000 of expenses related to Sarbanes-Oxley is included in other operating expenses.

Software licensing and maintenance expenses totaled $1.5 million in 2004, an increase of $272,000 or 23.1% over 2003. The increase reflects upgrades to our mainframe computer system.

Other operating expenses were $11.4 million for the 12 months ended December 31, 2004, which were in line with the $11.5 million in 2003. This expense category includes postage and courier, printing and supplies, card services, and audits and examinations. Audit and examination fees were up due to the additional requirements associated with the implementation of the Company's internal control over financial reporting process under Section 404 of Sarbanes-Oxley. Other losses were down $200,000, as operating expenses for 2003 included approximately $400,000 of losses resulting from fraudulent credit card transactions perpetrated against Tompkins Trust Company and several other banks in the third quarter of 2003.

The Company's efficiency ratio, defined as operating expense excluding amortization of intangible assets, divided by tax-equivalent net interest income plus noninterest income before securities gains and losses (increase in the cash surrender value of COLI is shown on a tax equivalent basis), was 56.1% in 2004, compared to 55.7% in 2003. Tax equivalency was based upon a 40% tax rate. Excluding the tax equivalent adjustments for tax-exempt securities, tax-exempt loans/leases, and COLI income, the efficiency ratio would be 58.0% in 2004 and 57.3% in 2003.

Minority Interest in Consolidated Subsidiaries

The Company had minority interest expense of $133,000 in 2004 compared to $134,000 in 2003, related to minority interests in three real estate investment trusts, which are substantially owned by the Company's banking subsidiaries. In 2004, the Trust Company purchased 50 shares of its real estate investment trust from the minority owners.

Income Tax Expense

The provision for income taxes provides for Federal and New York State income taxes. The 2004 provision was $12.5 million, compared to $12.1 million in 2003. The increase was primarily due to a higher level of taxable income. The effective tax rate for the Company decreased in 2004 to 32.8%, from 33.3% in 2003. The reduced rate reflects the effects of increased tax-exempt income from loans and leases, securities, and life insurance policies as well as an increase in assets in its real estate investment trusts in 2004.

FINANCIAL CONDITION

During 2005, total assets grew by $136.6 million or 6.9% to $2.1 billion at December 31, 2005, compared to $2.0 billion at December 31, 2004. Table 3-Balance Sheet Comparisons below provides a comparison of average and year-end balances of selected balance sheet categories over the past three years, and the change in those balances between 2004 and 2005. Over the past several years, the Company has focused on growing average earning assets to increase net interest income and offset the negative impact of a narrowing spread between the yield on earning assets and the cost of interest bearing liabilities. Earning asset growth in 2005 consisted of a $99.2 million increase in loans, mainly commercial real estate, residential real estate, and commercial loans. Loan growth is net

of $16.5 million in sales of fixed rate residential mortgage loans in 2005. A more detailed discussion of the loan portfolio is provided below in this section under the caption "Loan/Leases".

The Company's investment portfolio (excluding fair value adjustments on available-for-sale securities) was up 1.6% to approximately $669.4 million at year-end 2005. The Company sold roughly $80 million of available-for-sale securities in the fourth quarter of 2005 at a pre-tax loss of $1.5 million to restructure its investment portfolio. The proceeds from the sale were reinvested in higher yielding securities, mainly mortgage-backed securities and collateralized mortgage obligations. The current interest rate environment has limited opportunities to acquire securities at favorable yields, spreads over funding costs, and risk profiles. Consequently, the Company has used cash flow to reduce borrowings.

Deposit growth generated by the Company's branch network has supported the majority of the growth in earning assets. Core deposits remain the primary source of funding with core deposits increasing by $46.3 million or 3.9% to $1.2 billion at year-end 2005. Time deposits of $100,000 and more increased $145.7 million or 97.1%, to $295.7 million at year-end 2005, from $150.1 million at year end 2004. The Company also uses wholesale funding sources, which include borrowings and securities sold under agreements to repurchase, to support asset growth. These funding sources remained level between year-end 2005 and year-end 2004 at $216.3 million and $217.0 million, respectively. Refer to "Note 9 Securities Sold Under Agreements to Repurchase and Federal Funds Purchased" and "Note 10 Other Borrowings" in Notes to Consolidated Financial Statements in Part II, Item 8. of this Report on Form 10-K for further details on these funding sources.

AVERAGE BALANCE SHEET
                                                                                                    Change (2004-2005)
(in thousands)                                           2005           2004           2003         Amount      Percentage
--------------------------------------------------------------------------------------------------------------------------
Total assets                                     $  2,038,040   $  1,939,223   $  1,769,748   $     98,817            5.10%
Earning assets *                                    1,896,197      1,801,145      1,631,986         95,052            5.28%
Total loans and leases, less unearned income
   and net deferred costs and fees                  1,220,016      1,116,965      1,030,299        103,051            9.23%
Securities *                                          671,695        672,813        597,313         (1,118)          -0.17%
Core deposits **                                    1,221,082      1,175,110      1,085,731         45,972            3.91%
Time deposits of $100,000 and more                    224,248        138,056        112,752         86,192           62.43%
Federal funds purchased and securities
   sold under agreements to repurchase                157,817        175,168        132,957        (17,351)          -9.91%
Other borrowings                                       70,486         81,213         88,693        (10,727)         -13.21%
Shareholders' equity                                  174,986        163,354        152,263         11,632            7.12%
--------------------------------------------------------------------------------------------------------------------------

ENDING BALANCE SHEET
                                                                                                    Change (2004-2005)
(in thousands)                                           2005           2004           2003         Amount      Percentage
--------------------------------------------------------------------------------------------------------------------------
Total assets                                     $  2,106,870   $  1,970,295   $  1,864,446        136,575            6.93%
Earning assets *                                    1,944,124      1,832,042      1,714,995        112,082            6.12%
Total loans and leases, less unearned income
   and net deferred costs and fees                  1,271,349      1,172,148      1,069,140         99,201            8.46%
Securities *                                          669,414        658,872        636,639         10,542            1.60%
Core deposits **                                    1,248,314      1,201,988      1,126,101         46,326            3.85%
Time deposits of $100,000 and more                    295,746        150,076        105,102        145,670           97.06%
Federal funds purchased and securities
   sold under agreements to repurchase                152,651        153,715        187,908         (1,064)          -0.69%
Other borrowings                                       63,673         63,303         87,111            370            0.58%
Shareholders' equity                                  181,221        171,002        158,970         10,219            5.98%
==========================================================================================================================

* Balances of available-for-sale securities are shown at amortized cost.

** Core deposits equal total deposits less time deposits of $100,000 and more, brokered deposits, and municipal money market deposits.

Shareholders' Equity

The Consolidated Statements of Changes in Shareholders' Equity included in the Consolidated Financial Statements of the Company contained in Part II, Item 8. of this Report, detail the changes in equity capital, including payments to shareholders in the form of cash dividends. The Company continued its long history of increasing cash dividends with a per share increase of 7.3% in 2005, which follows an increase of 7.9% in 2004. Dividends per share amounted to $1.17 in 2005, compared to $1.09 in 2004, and $1.01 in 2003. Cash dividends paid represented 37.9%, 38.1%, and 37.3% of after-tax net income in each of 2005, 2004, and 2003, respectively.

Total shareholders' equity was up $10.2 million or 6.0% to $181.2 million at December 31, 2005, from $171.0 million at December 31, 2004. On February 15, 2005, the Company paid a 10% stock dividend. The stock dividend has no impact on the Company's total equity capital, but does result in a reallocation of equity, primarily by reducing undivided profits and increasing surplus. Undivided profits were down $25.3 million between year-end 2004 and year-end 2005, from $94.5 million to $69.2 million, while surplus increased by $42.8 million, from $75.8 million at December 31, 2004, to $118.7 million at December 31, 2005, mainly due to the 10% stock dividend. The decrease in accumulated other comprehensive income (loss) is due to an increase in unrealized losses on available-for-sale securities largely driven by increases in short-term interest rates.

On July 27, 2004, the Company's board of directors approved a stock repurchase plan (the "2004 Plan") to replace the 2002 Plan, which expired in July 2004. The 2004 Plan authorizes the repurchase of up to 440,000 shares of the Tompkins outstanding common stock over a two-year period. No shares were repurchased under the 2004 Plan in 2004. In 2005, the Company repurchased 21,984 shares under the 2004 Plan, all during the second quarter 2005, at an average price of $40.79.

Total shareholders' equity was up $12.0 million or 7.6% to $171.0 million at December 31, 2004, from $159.0 million at December 31, 2003. Undivided profits were up $15.8 million between year-end 2003 and year-end 2004, from $78.7 million to $94.5 million. Surplus decreased by $1.1 million, from $76.9 million at December 31, 2003, to $75.8 million at December 31, 2004, as the Company repurchased shares through its 2002 stock repurchase plan, which expired in July 2004. The decrease in accumulated other comprehensive income is due to a decrease in unrealized gains on available-for-sale securities largely due to increases in short-term interest rates.

The Company and its subsidiary banks are subject to quantitative capital measures established by regulation to ensure capital adequacy. Consistent with the objective of operating a sound financial organization, the Company and its subsidiary banks maintain capital ratios well above regulatory minimums, as detailed in "Note 17 Regulations and Supervision" in Notes to Consolidated Financial Statements in Part II, Item 8. of this Report on Form 10-K.

Securities

The Company's securities portfolio (excluding fair value adjustments on available-for-sale securities) at December 31, 2005, was $669.4 million, reflecting an increase of 1.6% from $658.9 million at December 31, 2004. "Note 2 Securities" in Notes to Consolidated Financial Statements in Part II, Item 8. of this Report, details the types of securities held, the carrying and fair values, and the contractual maturities as of December 31, 2005 and 2004. The amortized cost and fair value of the Company's securities portfolio at December 31, 2003, is presented in the table below. Qualified tax-exempt debt securities, primarily obligations of state and political subdivisions, were $129.5 million at December 31, 2005, or 19.3% of total securities, compared to $112.3 million, or 17.0% of total securities at December 31, 2004. Mortgage-backed securities, consisting mainly of securities issued by U.S. Government agencies, totaled $321.2 million at December 31, 2005, compared to $300.4 million at December 31, 2004.

                                                                               Available-for-Sale Securities
--------------------------------------------------------------------------------------------------------------------
                                                                              Gross         Gross
                                                             Amortized     Unrealized     Unrealized       Fair
December 31, 2003 (in thousands)                               Cost           Gains         Losses         Value
--------------------------------------------------------------------------------------------------------------------
Obligations of U.S. Government sponsored agencies          $    223,807   $      1,652   $      1,626   $    223,833
Obligations of states and political subdivisions                 48,222          2,138             89         50,271
Mortgage-backed securities                                      299,429          4,562          1,324        302,667
U.S. corporate securities                                         3,001              0            287          2,714
--------------------------------------------------------------------------------------------------------------------
Total debt securities                                           574,459          8,352          3,326        579,485
Equity securities                                                12,652              0              0         12,652
--------------------------------------------------------------------------------------------------------------------
Total available-for-sale securities                        $    587,111   $      8,352   $      3,326   $    592,137
====================================================================================================================

Available-for-sale securities include $12.4 million in nonmarketable equity
securities, which are carried at cost since fair values are not readily
determinable. This figure includes $10.9 million of Federal Home Loan Bank
(FHLB) stock, and $720,000 of Federal Reserve Bank (FRB) stock, which are
required to be held for regulatory purposes and for borrowings availability. The
required investment in FHLB stock is tied to the Company's borrowing levels with
the FHLB. Substantially all of the above mortgage-backed securities are direct
pass through securities or collateralized mortgage obligations issued or backed
by Federal agencies.

                                                                               Held-to-Maturity Securities
--------------------------------------------------------------------------------------------------------------------
                                                                              Gross         Gross
                                                             Amortized     Unrealized     Unrealized       Fair
December 31, 2003 (in thousands)                               Cost           Gains         Losses         Value
--------------------------------------------------------------------------------------------------------------------
Obligations of states and political subdivisions           $     49,528   $      1,939   $         26   $     51,441
--------------------------------------------------------------------------------------------------------------------
Total held-to-maturity debt securities                     $     49,528   $      1,939   $         26   $     51,441
====================================================================================================================

The amortized cost and fair value of debt securities by contractual maturity are shown in the following table. Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

Management's policy is to purchase investment grade securities that, on average, have relatively short expected durations. This policy helps mitigate interest rate risk and provides sources of liquidity without significant risk to capital. A large percentage of securities are direct obligations of the Federal government and its agencies. Expected maturities will differ from contractual maturities presented in Table 4-Maturity Distribution below, because issuers may have the right to call or prepay obligations with or without penalty and mortgage-backed securities will pay throughout the periods prior to contractual maturity. The contractual maturity distribution of debt securities and mortgage-backed securities as of December 31, 2005, along with the weighted average yield of each category, is presented in Table 4-Maturity Distribution below. Balances are shown at amortized cost and weighted average yields are calculated on a fully taxable-equivalent basis.

                                                                             As of December 31, 2005
----------------------------------------------------------------------------------------------------------------------
                                                                     Securities                     Securities
                                                                 Available-for-Sale *            Held-to-Maturity
----------------------------------------------------------------------------------------------------------------------
(dollar amounts in thousands)                                 Amount       Yield (FTE)        Amount       Yield (FTE)
----------------------------------------------------------------------------------------------------------------------
Obligations of U.S. Government sponsored agencies
   Within 1 year                                          $          0            0.00%   $          0            0.00%
    Over 1 to 5 years                                          175,247            3.96%              0            0.00%
    Over 5 to 10 years                                          25,476            4.66%              0            0.00%
    Over 10 years                                                5,000            5.50%              0            0.00%
----------------------------------------------------------------------------------------------------------------------
                                                          $    205,723            4.08%   $          0            0.00%
----------------------------------------------------------------------------------------------------------------------

State and political subdivisions
   Within 1 year                                          $      5,377            5.18%   $     35,148            4.41%
    Over 1 to 5 years                                           18,433            5.62%         21,869            4.88%
    Over 5 to 10 years                                          21,553            5.82%         21,213            5.83%
    Over 10 years                                                1,458            6.11%          4,428            7.08%
----------------------------------------------------------------------------------------------------------------------
                                                          $     46,821            5.68%   $     82,658            5.04%
----------------------------------------------------------------------------------------------------------------------

Mortgage-backed securities
   Within 1 year                                          $          0            0.00%   $          0            0.00%
    Over 1 to 5 years                                           23,733            4.03%              0            0.00%
    Over 5 to 10 years                                         123,280            4.38%              0            0.00%
    Over 10 years                                              174,155            4.81%              0            0.00%
----------------------------------------------------------------------------------------------------------------------
                                                          $    321,168            4.59%   $          0            0.00%
----------------------------------------------------------------------------------------------------------------------

Other securities
   Within 1 year                                          $          0            0.00%   $          0            0.00%
    Over 1 to 5 years                                                0            0.00%              0            0.00%
    Over 5 to 10 years                                               0            0.00%              0            0.00%
    Over 10 years                                                2,500            6.77%              0            0.00%
    Equity securities                                           10,544            4.06%              0            0.00%
----------------------------------------------------------------------------------------------------------------------
                                                          $     13,044            4.58%   $          0            0.00%
----------------------------------------------------------------------------------------------------------------------

Total securities
   Within 1 year                                          $      5,377            5.18%   $     35,148            4.41%
    Over 1 to 5 years                                          217,413            4.11%         21,869            4.88%
    Over 5 to 10 years                                         170,309            4.60%         21,213            5.83%
    Over 10 years                                              183,113            4.86%          4,428            7.08%
    Equity securities                                           10,544            4.06%              0            0.00%
----------------------------------------------------------------------------------------------------------------------
                                                          $    586,756            4.50%   $     82,658            5.04%
======================================================================================================================

* Balances of available-for-sale securities are shown at amortized cost.

At December 31, 2005, there were no holdings of any one issuer, other than the U.S. Government sponsored agencies, in an amount greater than 10% of the Company's shareholders' equity.

Loans/Leases

Total loans and leases, net of unearned income and net deferred loan fees and costs, grew 8.5%, to $1.3 billion at December 31, 2005 from $1.2 billion at December 31, 2004. Table 5-Loan/Lease Classification Summary below details the composition and volume changes in the loan/lease portfolio over the past five years.

                                                                                As of December 31,
(in thousands)                                            2005           2004           2003           2002           2001
--------------------------------------------------------------------------------------------------------------------------
Residential real estate                            $   475,155    $   451,014    $   404,487    $   391,120    $   327,987
Commercial real estate                                 347,443        296,614        242,248        196,517        168,452
Real estate construction                                30,309         27,163         21,788         26,110         25,112
Commercial                                             306,410        277,082        275,666        256,010        237,483
Consumer and other                                     100,249        100,971        104,647        103,853        111,880
Leases                                                  14,864         23,121         24,340         25,511         21,787

--------------------------------------------------------------------------------------------------------------------------
Total loans and leases                               1,274,430      1,175,965      1,073,176        999,121        892,701
Less: unearned income and deferred costs
    and fees                                            (3,081)        (3,817)        (4,036)        (3,775)        (2,859)
--------------------------------------------------------------------------------------------------------------------------
Total loans and leases, net of unearned income
    and deferred costs and fees                    $ 1,271,349    $ 1,172,148    $ 1,069,140    $   995,346    $   889,842
--------------------------------------------------------------------------------------------------------------------------

Residential real estate loans of $475.2 million increased by $24.1 million or 5.4% in 2005, from $451.0 million in 2004, and comprised 37.3% of total loans and leases at December 31, 2005. A low interest rate environment coupled with new branch offices contributed to the growth in the residential portfolio. The growth in residential loans in 2005 is net of $16.5 million of loan sales to Federal agencies.

Residential real estate mortgage loans are generally underwritten in accordance with secondary market guidelines to enhance the liquidity of these generally longer-term assets. As part of its asset/liability management strategy the Company may sell certain residential mortgage loans in the secondary market. During 2005, 2004, and 2003, the Company sold residential mortgage loans totaling $16.5 million, $14.7 million, and $52.6 million, respectively, and realized gains on these sales of $238,000, $240,000, and $970,000, respectively. When residential mortgage loans are sold or securitized, the Company typically retains all servicing, providing the Company with a source of fee income. In connection with the sales in 2005, 2004, and 2003, the Company recorded mortgage-servicing assets of $98,000, $95,200, and $688,000, respectively. Amortization of mortgage servicing amounted to $127,000 in 2005, $168,000 in 2004 and $343,000 in 2003. Residential mortgage loans serviced for others totaled $135.6 million at December 31, 2005, compared to $138.8 million at December 31, 2004. Capitalized mortgage servicing rights totaled $949,000 at December 31, 2005, and $978,000 at December 31, 2004, and are reported as intangible assets on the consolidated statements of condition.

Commercial real estate loans increased by $50.8 million, or 17.1%, in 2005 over 2004, from $296.6 million in 2004 to $347.4 million in 2005. Commercial real estate loans of $347.4 million represented 27.3% of total loans and leases at December 31, 2005. Commercial loans totaled $306.4 million at December 31, 2005, which is a 10.6% increase from commercial loans of $277.1 million at December 31, 2004. Growth in commercial lending, including commercial real estate reflects a continued emphasis on commercial lending. Management believes that the Company's community banking strategy can provide value to small business customers, while commercial lending products are typically attractive to the Company from a yield and interest rate risk perspective.

The consumer loan portfolio includes personal installment loans, indirect automobile financing, credit card loans, and overdraft lines of credit. The Company faces significant competition from local and national lenders as well as auto finance companies for consumer lending products. Consumer and other loans were $100.2 million at December 31, 2005, down from $101.0 million at December 31, 2004.

The lease portfolio decreased by 35.7% to $14.9 million at December 31, 2005 from $23.1 million at December 31, 2004. The lease portfolio has traditionally consisted of leases on vehicles for consumers and small businesses. Competition for automobile financing has led to a decline in the consumer lease portfolio over the past several years. Management continues to focus on leasing opportunities, primarily commercial leasing and municipal leasing, which have been the primary sources of new business in the lease portfolio. As of December 31, 2005, commercial leases and municipal leases represented 99.8% of total leases, while consumer leases made up the remaining 0.2%. As of December 31, 2004, commercial leases and municipal leases represented 98.5% of total leases, while consumer leases made up the remaining 1.5%.

The Company's loan/lease customers are located primarily in the upstate New York communities served by its three subsidiary banks. The Trust Company operates fourteen banking offices in the counties of Tompkins, Cayuga, Cortland, and

Schuyler, New York. The Bank of Castile operates thirteen banking offices in towns situated in and around the areas commonly known as the Letchworth State Park area and the Genesee Valley region of New York State. Mahopac National Bank is located in Putnam County, New York and operates four banking offices in that county, two full service offices in neighboring Dutchess County, New York and one full service office in Westchester County, New York. Other than general economic risks, management is not aware of any material concentrations of credit risk to any industry or individual borrower. Further information on the Company's lending activities, including related party transactions, is provided in "Note 4 Loan/Lease Classification Summary and Related Party Transactions" in Notes to Consolidated Financial Statements in Part II, Item 8. of this Report.

The Reserve for Loan/Lease Losses

Management reviews the adequacy of the reserve for loan/lease losses (reserve) on a regular basis. Management considers the accounting policy relating to the reserve to be a critical accounting policy, given the inherent uncertainty in evaluating the levels of the reserve required to cover credit losses in the portfolio and the material effect that assumptions could have on the Company's results of operations. Factors considered in determining the adequacy of the reserve and the related provision include: management's approach to granting new credit; the ongoing monitoring of existing credits by the internal and external loan review functions; the growth and composition of the loan/lease portfolio; comments received during the course of independent examinations; current local economic conditions; past due and nonperforming loan statistics; the impact of competition on loan structuring and pricing; the estimated values of collateral; and a historical review of loan/lease loss experience.

The Company has developed a methodology to measure the amount of estimated loan loss exposure inherent in the loan portfolio to ensure that an adequate reserve is maintained. The methodology includes an estimate of exposure for the following: specifically reviewed and graded loans, historical loss experience by product type, past due and nonperforming loans, and other internal and external factors such as local and regional economic conditions, growth trends, and credit policy and underwriting standards. The methodology includes a review of loans considered impaired in accordance with the Statement of Financial Accounting Standards (SFAS) No. 114, "Accounting by Creditors for Impairment of a Loan", as well as other commercial loans and commercial mortgage loans that are evaluated using an internal rating system. An estimated exposure amount is assigned to these internally reviewed credits based upon a review of the borrower's financial condition, payment history, collateral adequacy, and business conditions. For commercial loans and commercial mortgage loans not specifically reviewed, and for homogenous loan portfolios such as residential mortgage loans and consumer loans, estimated exposure amounts are assigned based upon historical loss experience, past due status, and management's judgment of the effects of recent and forecasted economic conditions on portfolio performance. Lastly, additional reserves are maintained based upon management judgment and assessment of other quantitative and qualitative factors such as regional and local economic conditions, concentrations of credit, industry concerns, adverse market changes in estimated or appraised collateral value, and portfolio growth trends.

Since the methodology is based upon historical experience and trends as well as management's judgment, factors may arise that result in different estimations. Significant factors that could give rise to changes in these estimates may include, but are not limited to, changes in economic conditions in the local area, concentration of risk, changes in interest rates, and declines in local property values. While management's evaluation of the reserve for loan/lease losses as of December 31, 2005, considers the reserve to be adequate, under adversely different conditions or assumptions, the Company would need to increase the reserve.

The allocation of the Company's reserve as of December 31, 2005, and each of the previous four years is illustrated in Table 6- Allocation of the Reserve for Loan/Lease Losses, below.

                                                                           December 31
(dollar amounts in thousands)                       2005          2004          2003          2002          2001
----------------------------------------------------------------------------------------------------------------
Total loans outstanding at end of year        $1,271,349    $1,172,148    $1,069,140    $  995,346    $  889,842
----------------------------------------------------------------------------------------------------------------
ALLOCATION OF THE RESERVE BY
       LOAN TYPE:
Commercial                                    $    5,354    $    5,871    $    5,872    $    4,349    $    3,011
Real estate                                        5,357         3,947         2,909         2,809         2,755
Consumer and all other                             2,850         2,731         2,904         2,912         2,976
Unallocated                                          116             0             0         1,634         1,964
----------------------------------------------------------------------------------------------------------------
Total                                         $   13,677    $   12,549    $   11,685    $   11,704    $   10,706
----------------------------------------------------------------------------------------------------------------
ALLOCATION OF THE RESERVE AS
       A PERCENTAGE OF TOTAL RESERVE:
Commercial                                            39%           47%           50%           37%           28%
Real estate                                           39%           31%           25%           24%           26%
Consumer and all other                                21%           22%           25%           25%           28%
Unallocated                                            1%            0%            0%           14%           18%
----------------------------------------------------------------------------------------------------------------
Total                                                100%          100%          100%          100%          100%
----------------------------------------------------------------------------------------------------------------
LOAN/LEASE TYPES AS A PERCENTAGE
     OF TOTAL LOANS/LEASES:
Commercial                                            24%           24%           26%           26%           26%
Real estate                                           67%           66%           62%           62%           59%
Consumer and all other                                 9%           10%           12%           12%           15%
----------------------------------------------------------------------------------------------------------------
Total                                                100%          100%          100%          100%          100%
----------------------------------------------------------------------------------------------------------------

Management is committed to early recognition of loan problems and to maintaining an adequate reserve. The above allocation is neither indicative of the specific amounts or the loan categories in which future charge-offs may occur, nor is it an indicator of future loss trends. The allocation of the reserve to each category does not restrict the use of the reserve to absorb losses in any category. The increase in the reserve between year-end 2004 and year-end 2005 reflects higher allocations due to growth in the loan portfolio and additional allocations for specifically reviewed and graded loans.

The level of future charge-offs are dependent upon a variety of factors such as national and local economic conditions, trends in various industries, underwriting characteristics, and conditions unique to each borrower. Given uncertainties surrounding these factors, it is difficult to estimate future losses.

The principal balances of nonperforming loans/leases, including impaired loans/leases, as of December 31 are detailed in the table below.

(dollar amounts in thousands)                                 2005        2004        2003        2002        2001
------------------------------------------------------------------------------------------------------------------
Loans 90 days past due and accruing                       $     12    $     31    $     26    $    368    $  1,612
Nonaccrual loans                                             4,072       7,392       7,321       6,977       5,736
Troubled debt restructurings not included above                 50         189         246         179         185
------------------------------------------------------------------------------------------------------------------
Total nonperforming loans/leases                             4,134       7,612       7,593       7,524       7,533
------------------------------------------------------------------------------------------------------------------
Other real estate owned                                        366          89         385         279          43
------------------------------------------------------------------------------------------------------------------
Total nonperforming assets                                $  4,500    $  7,701    $  7,978    $  7,803    $  7,576
------------------------------------------------------------------------------------------------------------------
Reserve as a percentage of loans/leases outstanding           1.08%       1.07%       1.09%       1.18%       1.20%
------------------------------------------------------------------------------------------------------------------
Reserve as a percentage of nonperforming loans/leases       330.84%     164.86%     153.89%     155.56%     142.12%
==================================================================================================================

The reserve represented 1.08% of total loans/leases outstanding at December 31, 2005, up slightly from 1.07% at December 31, 2004. The reserve coverage of nonperforming loans (loans past due 90 days and accruing, nonaccrual loans, and restructured troubled debt) was 3.31 times at December 31, 2005, compared to 1.65 times at December 31, 2004. The difference between the interest income that would have been recorded if these loans/leases had been paid in accordance with their original terms and the interest income recorded for the years ended December 31, 2005, 2004 and 2003 was not significant. A discussion of the Company's policy for placing loans on nonaccrual status is included in "Note 1 Summary of Significant Accounting Policies" in Notes to Consolidated Financial Statements in Part II, Item 8. of this Report.

The Company's historical loss experience is detailed in Table 7-Analysis of the Reserve for Loan/Lease Losses

                                                                                   December 31
(in thousands)                                               2005          2004          2003          2002          2001
-------------------------------------------------------------------------------------------------------------------------
Average loans outstanding during year                  $1,220,016    $1,116,965    $1,030,299    $  928,383    $  852,775
Balance of reserve at beginning of year                    12,549        11,685        11,704        10,706         9,824

LOANS CHARGED-OFF:
     Commercial, financial, agricultural                      890         1,221         1,595           335           371
     Real estate - mortgage                                   408            78           122            41            44
     Installment loans to individuals                         595           977           887           940           843
     Lease financing                                            0            27             9           133            28
     Other loans                                              344           487           394           272           108
-------------------------------------------------------------------------------------------------------------------------
Total loans charged-off                                $    2,237    $    2,790    $    3,007    $    1,721    $    1,394
-------------------------------------------------------------------------------------------------------------------------

RECOVERIES OF LOANS PREVIOUSLY
  CHARGED-OFF:
     Commercial, financial, agricultural                      210           198            73            91           360
     Real estate - mortgage                                    32            54            26            15            16
     Installment loans to individuals                         277           406           311           320           259
     Lease financing                                           37            23             5            22             1
     Other loans                                              150           113            76            36            34
-------------------------------------------------------------------------------------------------------------------------
Total loans recovered                                  $      706    $      794    $      491    $      484    $      670
-------------------------------------------------------------------------------------------------------------------------
Net loans charged-off                                       1,531         1,996         2,516         1,237           724
Additions to reserve charged to operations                  2,659         2,860         2,497         2,235         1,606
-------------------------------------------------------------------------------------------------------------------------
Balance of reserve at end of year                      $   13,677    $   12,549    $   11,685    $   11,704    $   10,706
-------------------------------------------------------------------------------------------------------------------------
Net charge-offs as a percentage of average
   loans/leases outstanding during the year                  0.13%         0.18%         0.24%         0.13%         0.08%
=========================================================================================================================

A weak economic climate in the Western New York market served by the Company contributed to the increase in commercial loan charge-offs in 2003 and a higher than historical level in 2004. The Western New York market was negatively impacted by cutbacks and layoffs by some major employers in Rochester, New York and by softness in the agricultural related businesses. Conditions have been improving in this market area.

Management reviews the loan portfolio continuously for evidence of potential problem loans/leases. Potential problem loans/leases are loans/leases that are currently performing in accordance with contractual terms, but where known information about possible credit problems of the related borrowers causes management to have doubt as to the ability of such borrowers to comply with the present loan payment terms and may result in disclosure of such loans/leases as nonperforming at sometime in the future. Management considers loans/leases classified as Substandard, which continue to accrue interest, to be potential problem loans/leases. The Company, through its internal loan review function identified 34 commercial relationships totaling $20.0 million at December 31, 2005, and 25 commercial relationships totaling $13.9 million at December 31, 2004, which it classified as Substandard, which continue to accrue interest. These loans remain in a performing status due to a variety of factors, including payment history, the value of collateral supporting the credits, and personal or government guarantees. These factors, when considered in the aggregate, give management reason to believe that the current risk exposure on these loans does not warrant accounting for these loans as nonperforming. Approximately $3.7 million of these loans are backed by guarantees of U.S. government agencies. While in a performing status as of December 31, 2005, these loans exhibit certain risk factors, which have the potential to cause them to become nonperforming. Accordingly, management's attention is focused on these credits, which are reviewed on at least a quarterly basis.

Deposits and Other Liabilities

Total deposits of $1.7 billion at December 31, 2005, reflected an increase of $122.1 million over total deposits at December 31, 2004. Deposit growth consisted of core deposits, which increased by $46.3 million, and time deposits of $100,000 or more, which were up $145.7 million. Municipal money market deposits were down by $75.0 million to $97.2 million. The rise in short-term market rates led to competitive pressures to increase the rates on time deposits over the period causing consumers, businesses and municipalities to move excess funds from lower yielding savings and money markets to time deposits. Deposits growth occurred at all three of the Company's banking subsidiaries and included growth in mature bank offices as well as newer bank offices. Bank offices opened less than 3 years, as of December 31, 2005, contributed $13.2 million to the growth in 2005, while the remaining $108.9 million of growth was in offices

opened over 3 years. Table 1-Average Statements of Condition and Net Interest Analysis above shows the average balance and average rate paid on the Company's primary deposit categories for the years ended December 31, 2005, 2004, and 2003. A maturity schedule of time deposits outstanding at December 31, 2005, is included in "Note 8 Deposits" in Notes to Consolidated Financial Statements in

Part II, Item 8. of this Report.

The Company's liability for securities sold under agreements to repurchase ("repurchase agreements") amounted to $152.7 million at December 31, 2005, roughly unchanged from $153.7 million at December 31, 2004.

The Company uses both retail and wholesale repurchase agreements. Retail repurchase agreements are arrangements with local customers of the Company, in which the Company agrees to sell securities to the customer with an agreement to repurchase those securities at a specified later date. Retail repurchase agreements totaled $67.7 million at December 31, 2005, and $52.8 million at December 31, 2004. Management generally views local repurchase agreements as an alternative to large time deposits. The Company's wholesale repurchase agreements are primarily with the Federal Home Loan Bank (FHLB) and amounted to $85.0 million at December 31, 2005 and $100.9 million at December 31, 2004. Refer to "Note 9 Securities Sold Under Agreements to Repurchase and Federal Funds Purchased" in Notes to Consolidated Financial Statements in Part II, Item
8. of this Report for further details on the Company's repurchase agreements.

The Company's other borrowings include amounts owed to the FHLB and totaled $63.7 million at year-end 2005, in line with the $63.3 million at year-end 2004. Borrowings with the FHLB outstanding at December 31, 2005, included $249,000 due in one year or less, and $63.2 million due in more than one year. The weighted average interest rate on other borrowings due in more than one year was 4.35% at December 31, 2005. Refer to "Note 10 Other Borrowings" in Notes to Consolidated Financial Statements in Part II, Item 8. of this Report for further details on the Company's term borrowings with the FHLB.

Other borrowings include a Treasury Tax and Loan Note account with the Federal Reserve Bank of New York totaling $100,000 at December 31, 2005 and December 31, 2004. At December 31, 2005 and 2004, Tompkins Insurance had borrowings of $142,000 and $94,000, respectively, from unrelated parties.

LIQUIDITY MANAGEMENT

The objective of liquidity management is to ensure the availability of adequate funding sources to satisfy the demand for credit, deposit withdrawals, and business investment opportunities. The Company's large, stable core deposit base and strong capital position are the foundation for the Company's liquidity position. Asset and liability positions are monitored primarily through Asset/Liability Management Committees of the Company's subsidiary banks individually and on a combined basis. These Committees review periodic reports on the liquidity and interest rate sensitivity positions. Comparisons with industry and peer groups are also monitored. The Company's strong reputation in the communities it serves, along with its strong financial condition, provide access to numerous sources of liquidity as described below. Management believes these diverse liquidity sources provide sufficient means to meet all demands on the Company's liquidity that are reasonably likely to occur.

Core deposits remain a key-funding source, increasing by $46.3 million to $1.2 billion at year-end 2005. Core deposits represented 74.2% of total deposits and 64.9% of total liabilities at December 31, 2005 compared to 77.0% of total deposits and 66.9% of total liabilities at December 31, 2004. Contributing to the growth in core deposits is the Company's continued focus on demand deposit growth, which increased $39.8 million or 12.4% year over year.

Non-core funding sources, which include time deposits of $100,000 or more, brokered time deposits, municipal money market accounts, repurchase agreements, and other borrowings, increased by $75.1 million between year-end 2004 and year-end 2005, from $575.9 million to $651.0 million. As a percentage of total liabilities, non-core funding sources increased from 32.0% at year-end 2004 to 33.8% at year-end 2005. The increase in the dollar volume of non-core funding was concentrated in time deposits of $100,000 or more. Rates on these products began to move upwards due to competitive market conditions. The increase in time deposits of $100,000 or more was partially offset by a reduction of municipal money market balances, as municipal customers looked to maximize their returns by moving to short term time deposits.

Non-core funding sources may require securities to be pledged against the underlying liability. Securities carried at $516.8 million and $522.1 million at December 31, 2005 and 2004, respectively, were pledged as collateral for public deposits and other borrowings, and pledged or sold under agreements to repurchase. Pledged securities represented 78.4% of total securities at December 31, 2005, compared to 79.1% of total securities at December 31, 2004.

The Company's liquidity is enhanced by ready access to national and regional wholesale funding sources including Federal funds purchased, repurchase agreements, negotiable certificates of deposit, and FHLB advances. Through its subsidiary banks, the Company has borrowing relationships with the FHLB and correspondent banks, which provide secured and unsecured borrowing capacity. At December 31, 2005, the unused borrowing capacity on established lines with the FHLB was $396.6 million. As members of the FHLB, the Company's subsidiary banks can use unencumbered mortgage-related assets to secure additional borrowings from the FHLB. At December 31, 2005, total unencumbered residential real estate assets were $285.5 million. Additional assets may also qualify as collateral for FHLB advances upon approval of the FHLB.

Short-term investments, consisting of securities with maturities of one year or less, totaled $40.5 million at year-end 2005 and $33.8 million at year-end 2004.

Cash flow from the loan and investment portfolios provides a significant source of liquidity. These assets may have stated maturities in excess of one year, but have monthly interest payments and principal reductions. Total mortgage-backed securities, at fair value, were $315.5 million at December 31, 2005 compared with $301.9 million at December 31, 2004. Using current prepayment assumptions, cash flow from the investment portfolio is estimated to be approximately $120.6 million in 2006. Investments in residential mortgage loans, consumer loans, and leases totaled approximately $587.4 million at December 31, 2005. Aggregate amortization from monthly payments on these loan assets provides significant additional cash flow to the Company. Table 8-Loan Maturity details total scheduled maturities of selected loan categories.

Remaining maturity of selected loans                          At December 31, 2005
(in thousands)                                Total       Within 1 year     1-5 years     After 5 years
-------------------------------------------------------------------------------------------------------
Commercial real estate                    $     346,760   $       4,544   $      10,022   $     332,194
Real estate construction                         30,179          11,297           1,791          17,091
Commercial                                      306,330         106,060          83,201         117,069
-------------------------------------------------------------------------------------------------------
Total                                     $     683,269   $     121,901   $      95,014   $     466,354
=======================================================================================================

Loan balances are shown net of unearned income and deferred costs and fees

Of the loan amounts shown above in Table 8-Loan Maturity maturing over one year, $136.4 million have fixed rates and $425.0 million have adjustable rates.

OFF-BALANCE SHEET ARRANGEMENTS

In the normal course of business the Company is party to certain financial instruments, which in accordance with accounting principles generally accepted in the United States, are not included in its Consolidated Statements of Condition. These transactions include commitments under stand-by letters of credit, unused portions of lines of credit, and commitments to fund new loans and are undertaken to accommodate the financing needs of the Company's customers. Loan commitments are agreements by the Company to lend monies at a future date. These loan and letter of credit commitments are subject to the same credit policies and reviews as the Company's loans. Because most of these loan commitments expire within one year from the date of issue, the total amount of these loan commitments as of December 31, 2005, are not necessarily indicative of future cash requirements. Further information on these commitments and contingent liabilities is provided in "Note 14 Commitments and Contingent Liabilities" in Notes to Consolidated Financial Statements in Part II, Item 8. of this Report.

CONTRACTUAL OBLIGATIONS

The Company leases land, buildings, and equipment under operating lease arrangements extending to the year 2090. Most leases include options to renew for periods ranging from 5 to 20 years. In addition, the Company has a software contract for its core banking application through August 1, 2009, along with contracts for more specialized software programs through May 15, 2008. Further information on the Company's lease arrangements is provided in "Note 7 Bank Premises and Equipment" in Notes to Consolidated Financial Statements in Part II, Item 8. of this Report. The Company's contractual obligations as of December 31, 2005, are shown in Table 9-Contractual Obligations and Commitments below.

                    Contractual Cash Obligations                                  Payments Due By Period
(in thousands)                                                              Within                                 Over 5
As of December 31, 2005                                         Total       1 year      1-3 years    3-5 years     years
---------------------------------------------------------------------------------------------------------------------------
Long-term debt                                               $  174,641   $   23,669   $   44,070   $   34,755   $   72,147
Operating leases                                                  5,308          675          911          278        3,444
Software contracts                                                2,904          951        1,638          315           --
---------------------------------------------------------------------------------------------------------------------------
Total contractual cash obligations                           $  182,853   $   25,295   $   46,619   $   35,348   $   75,591
===========================================================================================================================

RECENT ACCOUNTING STANDARDS

Statements of Financial Accounting Standards

In December 2004, The FASB issued SFAS No. 123R, "Share-Based Payment." This Statement is a revision of SFAS No. 123, "Accounting for Stock-Based Compensation" and supersedes Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees" and its related implementation guidance. SFAS No. 123R eliminates the ability to account for stock-based compensation using APB No. 25 and requires a public entity to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. The cost will be recognized over the period during which an employee is required to provide service in exchange for the award. The grant-date fair value of employee stock options and similar instruments will be estimated using option-pricing models adjusted for the unique characteristics of those instruments (unless observable market prices for the same or similar instruments are available). For equity awards that are modified after the grant date, incremental compensation cost will be recognized in an amount equal to the excess of the fair value of the modified award over the fair value of the original award immediately before the modification. In the future, the notes to consolidated financial statements will include information to assist users of financial information to understand the nature of share-based payment transactions and the effects of those transactions on the financial statements. On April 14, 2005, the FASB amended the date for compliance with SFAS No. 123R to the first interim or annual reporting period of the first fiscal year beginning on or after June 15, 2005. SFAS No. 123R is therefore effective for the Company beginning January 1, 2006. The Company will apply the modified prospective method, which requires that compensation expense be recorded for all unvested stock options and restricted stock upon adoption of SFAS 123R. The Company will use the Black-Scholes valuation model in determining the fair value of share-based payments to employees, which will then be amortized on a straight-line basis over the requisite service period.

SEC Staff Accounting Bulletin

FASB Staff Position No. FAS 115-1 and FAS 124-1, "The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments" (the "FSP"), was issued on November 3, 2005 and addresses the determination of when an investment is considered impaired; whether the impairment is other than temporary; and how to measure an impairment loss. The FSP also addresses accounting considerations subsequent to the recognition of an other-than-temporary impairment on a debt security, and requires certain disclosures about unrealized losses that have not been recognized as other-than-temporary impairments. The FSP replaces the impairment guidance in EITF Issue No. 03-1 with references to existing authoritative literature concerning other-than-temporary determinations (principally Statement of Financial Accounting Standards No. 115 and SEC Staff Accounting Bulletin 59). Under the FSP, impairment losses must be recognized in earnings equal to the entire difference between the security's cost and its fair value at the financial statement date, without considering partial recoveries subsequent to that date. The FSP also requires that an investor recognize an other-than-temporary impairment loss when a decision to sell a security has been made and the investor does not expect the fair value of the security to fully recover prior to the expected time of sale. The FSP is effective for reporting periods beginning after December 15, 2005. The Company does not expect that the application of the FSP will have a material impact on its financial condition, results of operations or financial statement disclosures.