BUSINESS

Tompkins Financial Corporation ("Tompkins" or the "Company") is a registered financial holding company incorporated in 1995 under the laws of the State of New York and its common stock is listed on the NYSE-Amex (Symbol: TMP). Tompkins is headquartered at The Commons, Ithaca, New York. Tompkins is the corporate parent of three community banks: Tompkins Trust Company ("Trust Company"), The Bank of Castile and The Mahopac National Bank ("Mahopac National Bank"); an insurance agency, Tompkins Insurance Agencies, Inc. ("Tompkins Insurance"); and a fee-based financial planning and wealth management firm, AM&M Financial Services, Inc. ("AM&M"). Unless the context otherwise requires, the term "Company" refers collectively to Tompkins Financial Corporation and its subsidiaries.

The Company operates in two business segments, banking and financial services. Financial services activities include the results of the Company's trust, financial planning, wealth management and broker-dealer services, risk management, and insurance agency operations. All other activities are considered banking. Information about the Company's business segments is included in Note 8, "Segment and Related Information," in Notes to Unaudited Condensed Consolidated Financial Statements.

The Company provides trust and investment services through Tompkins Investment Services ("TIS"), a division of Trust Company, and investment services through AM&M. TIS, with office locations at all three of the Company's subsidiary banks, provides a full range of money management services, including: investment management accounts, custody accounts, trusts, retirement plans and rollovers, estate settlement, and financial planning; and retail brokerage services. AM&M provides fee-based financial planning for small business owners, professionals and corporate executives and other individuals with complex financial needs. AM&M also provides wealth management services and operates a broker-dealer subsidiary, which is an outsourcing company for financial planners and investment advisors.

The Company provides property and casualty insurance services through Tompkins Insurance and life, long-term care and disability insurance through AM&M. Tompkins Insurance is headquartered in Batavia, New York, and offers property and casualty insurance to individuals and businesses primarily in Western New York. Over the past several years, Tompkins Insurance has acquired smaller insurance agencies in the market areas serviced by the Company's banking subsidiaries. Tompkins Insurance offers services to customers of the Company's banking subsidiaries by sharing offices with The Bank of Castile and The Trust Company. In addition to these shared offices, Tompkins Insurance has five stand-alone offices in Western New York, and two stand-alone offices in Tompkins County.

AM&M is headquartered in Pittsford, New York and offers fee-based financial planning services through three operating companies: (1) AM&M Planners, Inc., which provides fee based financial planning and wealth management services for corporate executives, small business owners and high net worth individuals; (2) Ensemble Financial Services, Inc., an independent broker-dealer and leading outsourcing company for financial planners and investment advisors; and (3) Ensemble Risk Solutions, Inc., which creates customized risk management plans using life, disability and long-term care insurance products.

Competition for commercial banking and other financial services is strong in the Company's market area. Competition includes other commercial banks, savings and loan associations, credit unions, finance companies, Internet-based financial services companies, mutual funds, insurance companies, brokerage and investment companies, and other financial intermediaries. The Company differentiates itself from its competitors through its full complement of banking and related financial services, and through its community commitment and involvement in its primary market areas, as well as its commitment to quality and personalized banking services. Banking and financial services are also highly regulated. As a financial holding company of three community banks, the Company is subject to examination and regulation by the Federal Reserve Board, the Federal Deposit Insurance Corporation, the Office of the Comptroller of Currency, and the New York State Banking Department. Additionally, the Company is subject to examination and regulation from the New York State Insurance Department, the Securities and Exchange Commission and the Financial Industry Regulatory Authority.

Other external factors affecting the Company's operating results are market rates of interest, the condition of financial markets, and both national and regional economic conditions.

The following discussion is intended to provide an understanding of the consolidated financial condition and results of operations of the Company for the three months ended March 31, 2009. It should be read in conjunction with the Company's audited consolidated financial statements and the notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2008, and the unaudited condensed consolidated financial statements and notes included elsewhere in this Quarterly Report on Form 10-Q.

The Company is making this statement in order to satisfy the "Safe Harbor" provision contained in the Private Securities Litigation Reform Act of 1995. The statements contained in this Quarterly Report on Form 10-Q that are not statements of historical fact may include forward-looking statements that involve a number of risks and uncertainties. Such forward-looking statements are made based on management's expectations and beliefs concerning future events impacting the Company and are subject to certain uncertainties and factors relating to the Company's operations and economic environment, all of which are difficult to predict and many of which are beyond the control of the Company, that could cause actual results of the Company to differ materially from those matters expressed and/or implied by such forward-looking statements. The following factors are among those that could cause actual results to differ materially from the forward-looking statements: changes in general economic, market and regulatory conditions; the development of an interest rate environment that may adversely affect the Company's interest rate spread, other income or cash flow anticipated from the Company's operations, investment and/or lending activities; changes in laws and regulations affecting banks, insurance companies, bank holding companies and/or financial holding companies; technological developments and changes; the ability to continue to introduce competitive new products and services on a timely, cost-effective basis; governmental and public policy changes, including environmental regulation; protection and validity of intellectual property rights; reliance on large customers; and financial resources in the amounts, at the times and on the terms required to support the Company's future businesses. In addition, such forward-looking statements could be affected by general industry and market conditions and growth rates, general economic and political conditions, including interest rate and currency exchange rate fluctuations, and other factors.

Critical Accounting Policies

The accounting and reporting policies followed by the Company conform, in all material respects, to accounting principles generally accepted in the United States and to general practices within the financial services industry. In the course of normal business activity, management must select and apply many accounting policies and methodologies and make estimates and assumptions that lead to the financial results presented in the Company's consolidated financial statements and accompanying notes. There are uncertainties inherent in making these estimates and assumptions, which could materially affect the Company's results of operations and financial position.

Management considers accounting estimates to be critical to reported financial results if (i) the accounting estimates require management to makes assumptions about matters that are highly uncertain, and (ii) different estimates that management reasonably could have used for the accounting estimate in the current period, or changes in the accounting estimate that are reasonably likely to occur from period to period, could have a material impact on the company's financial statements. Management considers the accounting policies relating to the allowance for loan and lease losses ("allowance"), pension and postretirement benefits and the review of the securities portfolio for other than temporary impairment to be critical accounting policies because of the uncertainty and subjectivity involved in these policies and the material effect that estimates related to these areas can have on the Company's results of operations.

For additional information on critical accounting policies, refer to Note 1 - Summary of Significant Accounting Policies in the notes to consolidated financials statements to the Company's audited consolidated financial statements and the sections captioned "Critical Accounting Policies" in Management's Discussion and Analysis of Financial Condition and Results of Operations contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2008, to gain a greater understanding of how the Company's financial performance is reported. There have been no significant changes in the Company's application of critical accounting policies since December 31, 2008. The Financial Accounting Standards Board ("FASB") finalized four FASB Staff Positions ("FSP") regarding the accounting treatment for investments, including other than temporary investments. Refer to Note 3 - Accounting Pronouncements for a discussion of these new FSPs.

OVERVIEW

Net income for the first quarter of 2009 was $7.7 million, or $0.79 per diluted share, compared to $7.5 million or $0.77 per diluted share for the first quarter of 2008. Per share results for the first quarter of 2009 represent an increase of 2.6% from the first quarter of 2008. The favorable performance in 2009 is primarily due to growth in net interest income, which was driven by growth in average earning assets and lower funding costs. The first quarter of 2008 included $983,000 of after tax income ($1.6 million pre-tax) related to the Visa, Inc. initial public offering (the "Visa IPO"). This item added $0.10 to 2008 diluted earnings per share.

Total revenues, consisting of net interest income and noninterest income, were $36.8 million in the first quarter of 2009, up 13.7% over the comparable period in 2008. First quarter 2009 total revenues benefited from solid growth in net interest income, resulting from lower funding costs and growth in average earning assets. Net interest income for the first quarter of 2009, was up 31.3% over the same period prior year. Noninterest income for the first quarter of 2009 was down 13.7% from the first quarter of 2008 as the Company's fee-based businesses continue to be impacted by weaknesses in the economy and financial markets. The first quarter of 2008 also included $1.6 million of pre-tax gains related to the Visa IPO.

Noninterest expenses were up 14.3% for the first quarter of 2009 over the same period in 2008. The increase was mainly in salaries and wages, premises and fixed asset expenses and other operating expenses, which were all affected by the addition of new offices related to the Sleepy Hollow acquisition completed in May 2008.

Recent Market Developments

The financial services industry is facing unprecedented challenges in the face of the current national and global economic crisis. The global and U.S. economies are experiencing significantly reduced business activity as a result of, among other factors, disruptions in the financial system. Dramatic declines in the housing market during the past year, with falling home prices and increasing foreclosures and unemployment, have resulted in significant write-downs of asset values by financial institutions, including government-sponsored entities and major commercial and investment banks. These write-downs, initially of mortgage-backed securities but spreading to credit default swaps and other derivative securities, have caused many financial institutions to seek additional capital, to merge with larger and stronger institutions and, in some cases, to fail. Tompkins operates in markets that have been impacted to a lesser extent than many areas around the country.

In response to the financial crises affecting the banking system and financial markets, the U.S. Congress has passed legislation and the U.S. Treasury has promulgated programs, designed to purchase assets from, provide equity capital to, and guarantee the liquidity of the industry.

On October 3, 2008 the Emergency Economic Stabilization Act of 2008 (the "EESA") was signed into law. The EESA authorizes the U.S. Treasury to, among other things, purchase up to $700 billion of mortgages, mortgage-backed securities and certain other financial instruments from financial institutions for the purpose of stabilizing and providing liquidity to the U.S. financial markets. The Company did not originate or invest in sub-prime assets, and therefore does not expect to participate in the sale of any of our assets into these programs. EESA also immediately increased the FDIC deposit insurance limit from $100,000 to $250,000 through December 31, 2009.

On October 14, 2008, the U.S. Treasury announced that it will purchase equity stakes in a wide variety of banks and thrifts. Under this program, known as the Troubled Asset Relief Program Capital Purchase Program (the "TARP Capital Purchase Program"), the U.S. Treasury will make $250 billion of capital available (from the $700 billion authorized by the EESA) to U.S. financial institutions through the purchase of preferred stock. In conjunction with the purchase of preferred stock, the U.S. Treasury will receive warrants to purchase common stock with an aggregate market price equal to 15% of the preferred investment. Participating financial institutions will be required to adopt the U.S. Treasury's standards for executive compensation and corporate governance for the period during which the Treasury holds equity issued under the TARP Capital Purchase Program. On November 14, 2008, the Company announced that it had decided not to apply to access funds through the TARP Capital Purchase Program.

On November 21, 2008, the Board of Directors of the FDIC adopted a final rule relating to the Temporary Liquidity Guarantee Program. Under this program, the FDIC will (i) guarantee, through the earlier of maturity or June 30, 2012, certain newly issued senior unsecured debt issued by participating institutions on or after October 14, 2008 and before June 30, 2009, and (ii) provide full FDIC deposit insurance coverage for noninterest-bearing transaction deposit accounts, NOW accounts paying less than 0.5% interest per annum and Interest on Lawyers Trust Accounts held at participating institutions through December 31, 2009. On November 20, 2008, Tompkins announced that it had chosen to participate in the FDIC program to extend unlimited deposit insurance coverage for non-interest bearing checking account balances through the end of 2009. For this additional insurance coverage, Tompkins pays a fee of 10 basis points per quarter on amounts in covered accounts exceeding $250,000.

Segment Reporting

The Company operates in two business segments, banking and financial services. Financial services activities consist of the results of the Company's trust, financial planning and wealth management, broker-dealer services, and risk management operations. All other activities are considered banking.

Banking Segment

The Banking segment reported net income of $6.9 million for the first quarter of 2009, up $291,000 or 4.4% from net income of $6.6 million in first quarter of 2008. First quarter 2008 results included $983,000 of after-tax income, related to the Visa IPO. The increase in net income for the first quarter of 2009 over the same period prior year was mainly the result of strong growth in net interest income. Net interest income for the three months ended March 31, 2009 was up $6.2 million or 31.4%, over same period in 2008, driven by growth in average earning assets and an improved net interest margin. The Company's net interest margin has benefited from disciplined deposit pricing, which has resulted in funding costs decreasing more rapidly than asset yields.

The provision for loan and lease losses for the first quarter of 2009 was $2.0 million compared to $625,000 for the same period in 2008. The increase reflects growth in total loans and leases from March 31, 2008 to March 31, 2009, higher levels of net charge-offs and nonperforming loans, and the impacts of a weakening economy.

Noninterest income for the three months ended March 31, 2009, was down $1.6 million or 25.1% compared to the same period in 2008. First quarter 2008 noninterest income included $1.6 million of pre-tax gains on the Visa IPO. Service charges on deposit accounts were down 12.1% in the first quarter of 2009 compared to the first quarter of 2008, mainly a result of lower overdraft fees. Gains on the sales of loans totaled $401,000 for the first quarter 2009 compared with a loss of $3,000 for the same period 2008. The historically low market rates for residential loan products in 2009 have increased residential mortgage activity, including refinancings. Net mark-to-market gains on assets and liabilities held at fair value were $314,000 in the first quarter of 2009 compared to net mark-to-market losses of $553,000 for the same period 2008.

Noninterest expenses for the first quarter of 2009 were up $2.9 million or 19.0% over the same period in 2008. The increase was mainly in salaries and wages as a result of the acquisition of Sleepy Hollow on May 9, 2008.

Financial Services Segment

The Financial Services segment had net income of $812,000 in the first quarter of 2009, a decrease of $86,000 or 9.6% from net income of $898,000 in the same quarter of the prior year. Noninterest income for the first quarter of 2009 was down $165,000 or 2.5% from the same period in 2008. Trust and investment services fees are generally based on the market value of assets within each account. Volatility in the equity and bond markets impacts the market value of assets and related investment fees. Insurance commissions and fees were up for the first quarter 2009 compared to the same period prior year. Noninterest expenses for the first quarter of 2009 were down $44,000 or 0.9% from the same period in the prior year.

RESULTS OF OPERATIONS

Average Consolidated Balance Sheet and Net Interest Analysis


                                      Year to Date Period Ended                    Year to Date Period Ended
                                                Mar-09                                       Mar-08

                                 Average                                      Average
(Dollar amounts in               Balance                      Average         Balance                      Average
thousands)                        (YTD)        Interest     Yield/Rate         (YTD)        Interest     Yield/Rate

ASSETS
Interest-earning assets
Certificates of deposit with
other banks
Securities (1)                 $      9,302    $       8           0.35 %   $     11,042    $      88           3.21 %
U.S. Government securities          672,855        7,781           4.69 %        565,869        6,875           4.89 %
Trading securities                   37,506          362           3.91 %         52,906          626           4.76 %
State and municipal (2)             117,235        1,766           6.11 %        100,629        1,544           6.17 %
Other securities (2)                 58,750          329           2.27 %         51,423          703           5.50 %

Total securities                    886,346       10,238           4.68 %        770,827        9,748           5.09 %
Federal funds sold                    8,547            5           0.24 %          2,936           20           2.74 %
Loans, net of unearned
income (3)
Real estate                       1,261,159       18,930           6.09 %        970,778       16,030           6.64 %
Commercial loans (2)                448,136        6,101           5.52 %        383,995        6,620           6.93 %
Consumer loans                       87,661        1,517           7.02 %         79,054        1,467           7.46 %
Direct lease financing               13,518          201           6.03 %         14,391          192           5.37 %

Total loans, net of unearned
income                            1,810,474       26,749           5.99 %      1,448,218       24,309           6.75 %

Total interest-earning
assets                            2,714,669       37,000           5.53 %      2,233,023       34,165           6.15 %


Other assets                        204,477                                      172,017


Total assets                   $  2,919,146                                 $  2,405,040

LIABILITIES & EQUITY
Deposits - Interest-bearing
deposits
Interest-bearing checking,
savings, & money market           1,085,475        2,366           0.88 %        809,456        3,594           1.79 %
Time deposits > $100,000            276,391        1,489           2.18 %        273,598        2,798           4.11 %
Time deposits < $100,000            417,859        2,528           2.45 %        339,271        3,530           4.18 %
Brokered time deposits <
$100,000                             42,688          241           2.29 %          4,070           37           3.66 %

Total interest-bearing
deposits                          1,822,413        6,624           1.47 %      1,426,395        9,959           2.81 %

Federal funds purchased &
securities sold under
agreements to repurchase            188,204        1,565           3.37 %        210,850        2,037           3.89 %
Other borrowings                    225,176        2,211           3.98 %        159,708        1,865           4.70 %

Total interest-bearing
liabilities                       2,235,793       10,400           1.89 %      1,796,953       13,861           3.10 %

Noninterest bearing deposits        417,932                                      368,699
Accrued expenses and other
liabilities                          42,464                                       34,967

Total liabilities                 2,696,189                                    2,200,619

Shareholders' equity                221,490                                      202,195
Noncontrolling interest               1,467                                        2,226

Total equity                        222,957                                      204,421

Total liabilities and equity   $  2,919,146                                 $  2,405,040

Interest rate spread                                               3.64 %                                       3.05 %

Net interest income/margin
on earning assets                              $  26,600           3.97 %                   $  20,304           3.66 %

Tax equivalent adjustment
(2)                                                 (749 )                                       (622 )

Net interest income per
consolidated Financial
statements                                     $  25,851                                    $  19,682

(1) Average balances and yields exclude unrealized gains and losses on available-for-sale securities.

(2) Interest income includes the effects of taxable-equivalent adjustments using a blended Federal and State income tax rate of 40% to increase tax exempt interest income to a taxable-equivalent basis.

(3) Nonaccrual loans are included in the average loans totals presented above. Payments received on nonaccrual loans have been recognized as disclosed in Note 1 to the Company's Annual Report on Form 10-K for the year ended December 31, 2008.

The above table shows average interest-earning assets and interest-bearing liabilities, and the corresponding yield or cost associated with each. Taxable-equivalent net interest income for the first quarter of 2009 was $26.6 million, an increase of $6.3 million, or 31.0%, compared to the same period in 2008. The favorable quarter-over-quarter comparison primarily resulted from an increase in the average volume of interest-earning assets, and an increase in net interest margin compared to the same period in the prior year. For the first quarter of 2009, average earning assets were up $481.6 million or 21.6%, over the same period in 2008. Contributing to the growth was the acquisition of Sleepy Hollow in May 2008, which added $235.4 million of interest-earning assets at acquisition. The taxable-equivalent net interest margin for the first quarter of 2009 of 3.97% was up from 3.66% for the first quarter of 2008. The net interest margin benefited from the decrease in short-term market interest rates . . .