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 10, "Segment and Related Information," in Notes to Unaudited Condensed Consolidated Financial Statements.

Banking services consist primarily of attracting deposits from the areas served by the Company's 45 banking offices and using those deposits to originate a variety of commercial loans, consumer loans, real estate loans (including commercial loans collateralized by real estate), and leases. Residential real estate mortgage loans are generally underwritten in accordance with Federal Home Loan Mortgage Corporation ("FHLMC") guidelines, which enhance the liquidity of these lending products. The Company's subsidiary banks have sold residential mortgage loans to FHLMC over the past several years to manage exposure to changing interest rates and to take advantage of favorable market conditions. The Company's subsidiary banks retain the servicing of the loans sold to FHLMC and record a servicing asset at the time of sale. The Company's principal expenses are interest on deposits, interest on borrowings, and operating and general administrative expenses, as well as

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, New York.

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 ("FRB"), the Federal Deposit Insurance Corporation ("FDIC"), the Office of the Comptroller of the 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. Economic conditions continue to be weak in the Company's market areas, as evidenced by higher unemployment rates and a slowdown in real estate sales. Unemployment rates for the second quarter of 2009 in the Company's markets are up significantly over the second quarter of 2008, but remain below state and national averages. During the second quarter of 2009, the Company experienced some deterioration in asset quality; however, asset quality measures continue to compare favorably to peer ratios. A continuation or worsening of the current economic situation may result in further declines in asset quality measures and increases in loan losses. Refer to the section captioned "Allowance for Loan and Lease Losses and Nonperforming Assets" elsewhere in this report for further details on asset quality.

During the second quarter of 2009, Tompkins issued $18.6 million aggregate liquidation amount of 7.0% cumulative trust preferred securities (the "Trust Preferred Securities"), through a newly-formed subsidiary, Tompkins Capital Trust I, a wholly-owned Delaware statutory trust ("Tompkins Capital Trust I"). The Trust Preferred Securities were offered and sold in reliance upon the exemption from registration provided by Rule 506 of Regulation D of the Securities Act of 1933, as amended (the "Securities Act"). The proceeds from the issuance of the Trust Preferred Securities, together with Tompkins' capital contribution to the trust, were used to acquire Tompkins' Subordinated Debentures that are due concurrently with the Trust Preferred Securities. The net proceeds of the offering are being used to support business growth and for general corporate purposes. For further discussion of the Trust Preferred Securities, see Financial Condition-Capital below.

Forward-Looking Statements

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 and to gain a greater understanding of how the Company's financial performance is reported, 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 section 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. There have been no significant changes in the Company's application of critical accounting policies since December 31, 2008. The FASB finalized three Staff Positions ("FSP") regarding fair value measurements and the accounting treatment for investments, including other-than-temporary impairment on investments. Refer to Note 3 - "Accounting Pronouncements" in the "Notes to Unaudited Condensed Consolidated Financial Statements" included elsewhere in this Quarterly Report on Form 10-Q for a discussion of these new FSPs.

OVERVIEW
Net income for the second quarter of 2009 was $7.4 million, or $0.76 per diluted share, compared to $7.1 million or $0.73 per diluted share for the second quarter of 2008. Diluted per share results for the second quarter of 2009 represent an increase of 4.1% from the second quarter of 2008. For the year to date period, net income was $15.2 million or $1.55 per diluted share in 2009, up from the $14.6 million or $1.50 per diluted share in 2008. Diluted per share results for the first six months of 2009 reflect an increase of 3.3% over the same period in 2008. The growth rates over prior periods were impacted by special events in the second quarter of 2009 and the first quarter of 2008. The second quarter of 2009 included a $1.4 million expense ($0.08 per diluted share) related to the FDIC's special deposit insurance assessment, while the first quarter of 2008 included nonrecurring pre-tax income of $1.6 million ($0.10 per diluted share) related to the Visa, Inc. initial public offering (the "Visa IPO").

Return on average assets (ROA) for the quarter ended June 30, 2009 was 1.00% compared to 1.10% for the quarter ended June 30, 2008. Return on average shareholders' equity (ROE) for the second quarter of 2009 was 12.98%, compared to 13.48% for the same period in 2008. For the six month period ended June 30, 2009, ROA was 1.04%, compared to 1.17% for the same period in 2008. ROE for the six months ended June 30, 2009, was 13.49%, compared to 14.11% for the same period in 2008. As of March 31, 2009, the Company ranked in the 85th percentile for ROA and the 91stpercentile for ROE of its peer group.

Total revenues, consisting of net interest income and noninterest income, were $38.0 million in the second quarter of 2009 and $74.8 million for the first six months of 2009, up 13.7% and 13.7% over the comparable periods in 2008. Both periods benefited from growth in net interest income. Net interest income for the second quarter of 2009, was up 21.2% over the same prior year period, and up 2.5% over the first quarter of 2009. For the year-to-date period ended June 30, 2009, net interest income of $52.4 million was up 26.0% over the comparable year ago period. The growth in net interest income reflects lower interest expense on deposits and growth in average earning assets. Noninterest income for the second quarter and year to date 2009 was down 0.5%, and 7.4%, respectively, from the same periods in 2008, as the Company's fee-based businesses continue to be impacted by weaknesses in the economy and financial markets. Noninterest income for the first six months of 2008 also included $1.6 million of pre-tax gains related to the Visa IPO recorded in the first quarter 2008.

The provision for loan and lease losses totaled $2.4 million and $4.4 million, respectively, in the second quarter and year to date period of 2009, compared to $1.2 million and $1.8 million for the same periods in 2008. An increase in net charge-offs, nonperforming loans and general economic conditions all contributed to the higher provision expense.

Noninterest expenses were up 13.4% for the second quarter of 2009 and 13.8% for the first six months of 2009 over the same periods in 2008. A large contributor to the increase in 2009 over the prior year was the increase in FDIC deposit insurance assessments as a result of higher deposit premiums in 2009, and a special deposit insurance assessment of $1.4 million in the second quarter of 2009. In addition, salaries and benefit related expenses, and occupancy expenses were up over the prior year.

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 $6.5 million for the second quarter of 2009, up $433,000 or 7.1% from net income of $6.1 million in 2008. For the year to date period, net income was $13.4 million, an increase of $722,000, or 5.7% over the same period in 2008. The increase in net income in both the quarter and year to date period in 2009 over the same periods in the prior year was mainly the result of an increase in net interest income due to 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 growth rates over prior periods were impacted by special events in the second quarter of 2009 and the first quarter of 2008. The second quarter of 2009 included a

Net interest income for the three and six months ended June 30, 2009, was up $4.6 million or 21.2%, and $10.8 million or 26.0%, respectively, over the same periods in 2008, driven by growth in average earning assets and a decrease in funding costs.

The provision for loan and lease losses for the three and six months ended June 30, 2009, was $2.4 million and $4.4 million, compared to $1.2 million and $1.8 million for the same periods in 2008. An increase in net charge-offs and nonperforming assets and general economic conditions all contributed to the higher provision expense.

Noninterest income for the three and six months ended June 30, 2009, was down $33,000 or 0.6% and $1.6 million, or 14.0%, respectively, over the same periods in 2008. The decrease in 2009 from 2008 was mainly due to lower service charges on deposit accounts, mainly overdraft fees, lower earnings on corporate-owned life insurance, lower loan related fees, and a decrease in gains on the sales of available-for-sale securities. In addition, noninterest income for the first six months of 2008 included $1.6 million of nonrecurring income related to the Visa IPO. These factors were partially offset by an increase in gains on the sales of residential mortgage loans and mark-to-market gains on assets and liabilities held at fair value.

Noninterest expenses for the three and six months ended June 30, 2009, were up $2.7 million or 16.1% and $5.7 million or 17.5%, respectively, over the same periods in 2008. The increase was mainly in FDIC insurance expense, salaries and other incentive compensation accruals, and occupancy expense. The increase in FDIC insurance expense was primarily due to higher FDIC deposit insurance assessments in 2009 over 2008, and a special deposit insurance assessment of $1.4 million in the second quarter of 2009. Year-over-year comparisons are also impacted by the acquisition of Sleepy Hollow Bancorp, Inc. ("Sleepy Hollow") in May 2008.

Financial Services Segment

The financial services segment had net income of $925,000 in the second quarter of 2009, a decrease of $105,000 or 10.2% from net income of $1.0 million in the same quarter of the prior year. For the year to date period, net income was $1.7 million, a decrease of $192,000, or 10.0% over the same period in 2008. Noninterest income for the three and six months ended June 30, 2008, was down $42,000 or 0.6% and $207,000, or 1.6%, respectively, over the same periods in 2008. The decrease in noninterest income was mainly a result of lower investment services fees. Investment services fees are largely based on the market value of assets within each account. Volatility in the equity and bond markets resulted in a decrease in the market value of assets and related investment fees. Noninterest expenses for the three and six months ended June 30, 2009, were up $156,000 or 3.2% and $113,000 or 1.1%, respectively, over the same periods in the prior year. The increase was mainly in salary and wages, reflecting annual merit increases, other incentive compensation accruals, and other operating expenses.

Average Consolidated Balance Sheet and Net Interest Analysis


                                   Quarter Ended                        Year to Date Period Ended                   Year to Date Period Ended
                                      June-09                                    June-09                                     June-08

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

ASSETS
Interest-earning
assets
Interest-bearing
balances due from
banks Securities
(1)                   $     8,687    $       4           0.18 %  $      8,993    $      12           0.27 %  $      8,240    $     104           2.54 %
U.S. Government
Securities                725,858        8,067           4.46 %       699,503       15,847           4.57 %       588,911       14,101           4.82 %
Trading Securities         35,952          346           3.86 %        36,725          707           3.88 %        47,897        1,093           4.59 %
State and
municipal (2)             114,189        1,734           6.09 %       115,703        3,500           6.10 %       105,054        3,187           6.10 %
Other Securities
(2)                        58,777          572           3.90 %        58,702          901           3.10 %        54,111        1,391           5.17 %

Total securities          934,776       10,719           4.60 %       910,633       20,955           4.64 %       795,973       19,772           5.00 %
Federal Funds Sold          8,905            4           0.18 %         8,727            8           0.18 %        10,521           75           1.43 %
Loans, net of
unearned income
(3)
Real Estate             1,266,398       18,665           5.91 %     1,264,018       37,583           6.00 %     1,028,815       33,610           6.57 %
Commercial Loans
(2)                       459,550        6,212           5.42 %       453,652       12,335           5.48 %       380,100       12,547           6.64 %
Consumer Loans             86,720        1,486           6.87 %        87,184        2,993           6.92 %        82,892        3,005           7.29 %
Direct Lease
Financing                  13,389          207           6.20 %        13,453          408           6.12 %        14,461          413           5.74 %

Total loans, net
of unearned income      1,826,057       26,570           5.84 %     1,818,307       53,319           5.91 %     1,506,268       49,575           6.62 %

Total
interest-earning
assets                  2,778,425       37,297           5.38 %     2,746,660       74,294           5.45 %     2,321,002       69,526           6.02 %


Other assets              203,652                                     204,124                                     182,996


Total assets          $ 2,982,077                                $  2,950,784                                $  2,503,998

LIABILITIES &
EQUITY

Deposits
Interest-bearing
deposits
Interest bearing
checking, savings,
& money market          1,131,756        2,207           0.78 %     1,108,743        4,573           0.83 %       863,407        6,782           1.58 %
Time Dep >
$100,000                  291,106        1,314           1.81 %       283,789        2,805           1.99 %       273,347        5,087           3.74 %
Time Dep <
$100,000                  423,300        2,417           2.29 %       420,595        4,943           2.37 %       357,979        6,711           3.77 %
Brokered Time Dep
< $100,000                 43,273          203           1.88 %        42,982          444           2.08 %         3,564           60           3.39 %

Total
interest-bearing
deposits                1,889,435        6,141           1.30 %     1,856,109       12,765           1.39 %     1,498,297       18,640           2.50 %

Federal funds
purchased &
securities sold
under agreements
to repurchase             184,847        1,564           3.39 %       186,516        3,129           3.38 %       210,004        4,024           3.85 %
Other borrowings          202,509        2,020           4.00 %       213,780        4,178           3.94 %       166,823        3,801           4.62 %
Trust preferred
debentures                 18,663          325           6.98 %        11,318          378           6.73 %         1,200           36           6.03 %

Total
interest-bearing
liabilities             2,295,454       10,050           1.76 %     2,267,723       20,450           1.82 %     1,876,324       26,501           3.49 %

Noninterest
bearing deposits          418,288                                     418,110                                     383,580
Accrued expenses
and other
liabilities                38,218                                      38,394                                      35,642

Total liabilities       2,751,960                                   2,724,227                                   2,295,546
Tompkins Financial
Corporation
Shareholders'
equity                    228,616                                     225,073                                     205,799
Noncontrolling
interest                    1,501                                       1,484                                       2,653

Total equity              230,117                                     226,557                                     208,452

Total liabilities
and equity            $ 2,982,077                                $  2,950,784                                $  2,503,998

Interest rate
spread                                                   3.62 %                                      3.63 %                                      3.18 %

Net interest
income/margin on
earning assets                       $  27,247           3.93 %                  $  53,844           3.95 %                  $  43,025           3.73 %

Tax Equivalent
Adjustment                                (738 )                                    (1,485 )                                    (1,476 )


Net interest
income per
consolidated
. . .