Edgar Filing: TOMPKINS FINANCIAL CORP

tomp-10q_063011.htm

United States

Securities and Exchange Commission

Washington, D.C. 20549

FORM 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2011

o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____ to ______

Commission File Number 1-12709

Tompkins Financial Corporation

(Exact name of registrant as specified in its charter)

New York		16-1482357
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

The Commons, P.O. Box 460, Ithaca, NY		14851
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (607) 273-3210

Former name, former address, former fiscal year, if changed since last report: NA

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o.

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o. *The registrant has not yet been phased into the interactive data requirements.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

	Large Accelerated Filer o	Accelerated Filer x

	Non-Accelerated Filer o (Do not check if a smaller reporting company)	Smaller Reporting Company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.) Yes o No x.

Indicate the number of shares of the Registrant’s Common Stock outstanding as of the latest practicable date:

Class		Outstanding as of July 28, 2011
Common Stock, $0.10 par value		10,831,415 shares

TOMPKINS FINANCIAL CORPORATION

FORM 10-Q

INDEX

		PAGE

PART I - FINANCIAL INFORMATION

	Item 1 - Financial Statements (Unaudited) Condensed Consolidated Statements of Condition as of June 30, 2011 and December 31, 2010		3

	Condensed Consolidated Statements of Income for the three and six months ended June 30, 2011 and 2010		4

	Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2011 and 2010		5

	Condensed Consolidated Statements of Changes in Shareholders’ Equity for the six months ended June 30, 2011 and 2010		6

	Notes to Unaudited Condensed Consolidated Financial Statements		7-31

	Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations		31-49

	Item 3 - Quantitative and Qualitative Disclosures About Market Risk		49

	Item 4 - Controls and Procedures		50

PART II - OTHER INFORMATION

	Item 1 – Legal Proceedings		50

	Item 1A – Risk Factors		50

	Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds		51

	Item 3 - Defaults Upon Senior Securities		51

	Item 4 - (Removed and Reserved)		51

	Item 5 - Other Information		51

	Item 6 - Exhibits		52

SIGNATURES			53

EXHIBIT INDEX			54

TOMPKINS FINANCIAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CONDITION

(In thousands, except share and per share data) (Unaudited)	As of			As of
ASSETS	06/30/2011			12/31/2010

Cash and noninterest bearing balances due from banks	$	49,576		$	47,339
Interest bearing balances due from banks		1,803			2,226
Money market funds		100			100
Cash and Cash Equivalents		51,479			49,665

Trading securities, at fair value		21,102			22,837
Available-for-sale securities, at fair value		1,087,700			1,039,608
Held-to-maturity securities, fair value of $30,439 at June 30, 2011, and $56,064
at December 31, 2010		29,761			54,973
Loans and leases, net of unearned income and deferred costs and fees		1,920,716			1,910,358
Less: Allowance for loan and lease losses		28,361			27,832
Net Loans and Leases		1,892,355			1,882,526

Federal Home Loan Bank stock and Federal Reserve Bank stock		18,800			21,985
Bank premises and equipment, net		44,749			46,103
Corporate owned life insurance		42,299			40,024
Goodwill		44,032			41,649
Other intangible assets, net		4,470			4,207
Accrued interest and other assets		50,851			56,766
Total Assets	$	3,287,598		$	3,260,343

LIABILITIES
Deposits:
Interest bearing:
Checking, savings and money market		1,320,669			1,230,815
Time		715,062			741,829
Noninterest bearing		536,277			523,229
Total Deposits		2,572,008			2,495,873

Federal funds purchased and securities sold under agreements to repurchase		178,545			183,609
Other borrowings, including certain amounts at fair value of $11,656 at June 30, 2011
and $11,629 at December 31, 2010		172,643			244,193
Trust preferred debentures		25,062			25,060
Other liabilities		39,280			38,200
Total Liabilities	$	2,987,538		$	2,986,935

EQUITY
Tompkins Financial Corporation shareholders' equity:
Common Stock - par value $.10 per share: Authorized 25,000,000 shares; Issued:
11,087,804 at June 30, 2011; and 10,934,385 at December 31, 2010		1,109			1,093
Additional paid-in capital		204,284			198,114
Retained earnings		87,188			76,446
Accumulated other comprehensive income (loss)		8,375			(1,260	)
Treasury stock, at cost – 90,588 shares at June 30, 2011, and 92,025 shares
at December 31, 2010		(2,413	)		(2,437	)

Total Tompkins Financial Corporation Shareholders’ Equity		298,543			271,956
Noncontrolling interests		1,517			1,452
Total Equity	$	300,060		$	273,408
Total Liabilities and Equity	$	3,287,598		$	3,260,343

TOMPKINS FINANCIAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

	Three Months Ended						Six Months Ended
(In thousands, except per share data) (Unaudited)	06/30/2011			06/30/2010			06/30/2011			06/30/2010
INTEREST AND DIVIDEND INCOME
Loans	$	25,883		$	26,750		$	51,584		$	53,369
Due from banks		4			10			9			22
Federal funds sold		1			6			5			9
Trading securities		220			278			455			588
Available-for-sale securities		7,896			8,794			15,583			17,793
Held-to-maturity securities		331			394			696			802
Federal Home Loan Bank stock and Federal Reserve Bank stock		219			218			509			501
Total Interest and Dividend Income		34,554			36,450			68,841			73,084
INTEREST EXPENSE
Time certificates of deposits of $100,000 or more		868			1,146			1,717			2,324
Other deposits		2,565			3,502			5,190			7,329
Federal funds purchased and securities sold under agreements to repurchase		1,248			1,308			2,540			2,733
Trust preferred debentures		388			436			792			803
Other borrowings		1,533			1,952			3,108			3,845
Total Interest Expense		6,602			8,344			13,347			17,034
Net Interest Income		27,952			28,106			55,494			56,050
Less: Provision for loan and lease losses		1,005			1,408			2,915			3,591
Net Interest Income After Provision for Loan and Lease Losses		26,947			26,698			52,579			52,459
NONINTEREST INCOME
Investment services income		3,825			3,604			7,665			7,341
Insurance commissions and fees		3,459			3,191			6,833			6,357
Service charges on deposit accounts		2,107			2,430			4,091			4,487
Card services income		1,269			1,067			2,514			2,041
Mark-to-market gain on trading securities		165			291			115			381
Mark-to-market loss on liabilities held at fair value		(202	)		(490	)		(27	)		(618	)
Other income		1,390			1,180			3,219			2,486
Net gain on securities transactions		0			58			95			176
Total Noninterest Income		12,013			11,331			24,505			22,651
NONINTEREST EXPENSES
Salaries and wages		11,211			10,669			22,036			21,008
Pension and other employee benefits		3,657			3,442			7,688			7,354
Net occupancy expense of premises		1,706			1,725			3,601			3,606
Furniture and fixture expense		1,199			1,143			2,237			2,326
FDIC insurance		531			857			1,582			1,769
Amortization of intangible assets		146			199			316			401
Other operating expense		6,713			6,481			12,920			12,547
Total Noninterest Expenses		25,163			24,516			50,380			49,011
Income Before Income Tax Expense		13,797			13,513			26,704			26,099
Income Tax Expense		4,364			4,447			8,466			8,585
Net Income attributable to Noncontrolling Interests and Tompkins Financial Corporation		9,433			9,066			18,238			17,514
Less: Net income attributable to noncontrolling interests		33			33			65			65
Net Income Attributable to Tompkins Financial Corporation	$	9,400		$	9,033		$	18,173		$	17,449
Basic Earnings Per Share	$	0.86		$	0.84		$	1.66		$	1.62
Diluted Earnings Per Share	$	0.85		$	0.83		$	1.65		$	1.61

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands) (Unaudited)

	06/30/2011			06/30/2010
OPERATING ACTIVITIES
Net income attributable to Tompkins Financial Corporation	$	18,173		$	17,449
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan and lease losses		2,915			3,591
Depreciation and amortization of premises, equipment, and software		2,375			2,353
Amortization of intangible assets		316			401
Earnings from corporate owned life insurance		(761	)		(711	)
Net amortization on securities		4,045			1,669
Mark-to-market gain on trading securities		(115	)		(381	)
Mark-to-market loss on liabilities held at fair value		27			618
Net gain on available-for-sale securities		(95	)		(176	)
Net gain on sale of loans		(300	)		(339	)
Proceeds from sale of loans		15,932			18,598
Loans originated for sale		(14,396	)		(17,859	)
Net gain on sale of bank premises and equipment		(6	)		(37	)
Stock-based compensation expense		631			569
(Increase) decrease in accrued interest receivable		(605	)		1,084
Decrease in accrued interest payable		(367	)		(440	)
Proceeds from maturities and payments of trading securities		1,818			5,097
Contribution to pension plan		(2,750	)		0
Other, net		4,623			8,741
Net Cash Provided by Operating Activities		31,460			40,227
INVESTING ACTIVITIES
Proceeds from maturities, calls and principal paydowns of available-for-sale securities		189,113			192,315
Proceeds from sales of available-for-sale securities		34,019			13,755
Proceeds from maturities, calls and principal paydowns of held-to-maturity securities		28,668			13,608
Purchases of available-for-sale securities		(260,039	)		(219,690	)
Purchases of held-to-maturity securities		(3,445	)		(10,037	)
Net (increase) decrease in loans		(13,980	)		12,703
Net decrease in Federal Home Loan Bank stock and Federal Reserve Bank stock		3,185			711
Proceeds from sale of bank premises and equipment		46			43
Purchases of bank premises and equipment		(1,405	)		(2,233	)
Net cash used in acquisitions		(243	)		0
Other, net		(672	)		(1,739	)
Net Cash Used in Investing Activities		(24,753	)		(564	)
FINANCING ACTIVITIES
Net increase in demand, money market, and savings deposits		102,902			27,174
Net decrease in time deposits		(26,767	)		(6,815	)
Net decrease in Federal funds purchases and securities sold under agreements to repurchase		(5,064	)		(17,576	)
Increase in other borrowings		45,880			0
Repayment of other borrowings		(117,457	)		(19,894	)
Cash dividends		(7,431	)		(6,989	)
Cash paid in lieu of fractional shares - 10% stock dividend		0			(7	)
Shares issued for dividend reinvestment plan		1,258			1,294
Shares issued for employee stock ownership plan		1,053			1,278
Net proceeds from exercise of stock options		740			853
Tax benefit from stock option exercises		(7	)		111
Net Cash Provided by Financing Activities		(4,893	)		(20,571	)
Net Increase in Cash and Cash Equivalents		1,814			19,092
Cash and cash equivalents at beginning of period		49,665			45,462
Total Cash & Cash Equivalents at End of Period		51,479			64,554
Supplemental Information:
Cash paid during the year for - Interest	$	13,714		$	17,474
Cash paid during the year for - Taxes		3,744			8,405
Transfer of loans to other real estate owned		0			1,639
Non-cash investing and financing activities:
Fair value of non-cash assets other than goodwill acquired in purchase acquisitions		64			0
Fair value of liabilities assumed in purchase acquisition		31			0
Goodwill related to acquisition		2,382			0
Fair value of shares issued for acquisition		2,535			0
See accompanying notes to unaudited condensed consolidated financial statements.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(in thousands except share and per share data)	Common Stock		Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive (Loss) Income			Treasury Stock			Non-controlling Interests		Total
Balances at January 1, 2010	$	978	$	155,589		$	92,402		$	(3,087	)	$	(2,326	)	$	1,452	$	245,008
Net income attributable to noncontrolling interests and Tompkins Financial Corporation							17,449									65		17,514
Other comprehensive income										9,052								9,052
Total Comprehensive Income																		26,566
Cash dividends ($0.65 per share)							(6,989	)										(6,989	)
Exercise of stock options and related tax benefit (34,733 shares, net)		5		959														964
Effect of 10% stock dividend (988,664 shares)1		98		35,301			(35,399	)										0
Cash paid in lieu of fractional shares							(7	)										(7	)
Stock-based compensation expense				569														569
Shares issued for dividend reinvestment plan (31,027 shares)		3		1,291														1,294
Shares issued for employee stock ownership plan (34,436 shares)		3		1,275														1,278
Directors deferred compensation plan ((823) shares)				41									(41	)				0
Forfeiture of restricted shares ((330) shares)
Balances at June 30, 2010	$	1,087	$	195,025		$	67,456		$	5,965		$	(2,367	)	$	1,517	$	268,683

Balances at January 1, 2011	$	1,093	$	198,114		$	76,446		$	(1,260	)	$	(2,437	)	$	1,452	$	273,408
Net income attributable to noncontrolling interests and Tompkins Financial Corporation							18,173									65		18,238
Other comprehensive income										9,635								9,635
Total Comprehensive Income																		27,873
Cash dividends ($0.68 per share)							(7,431	)										(7,431	)
Exercise of stock options and related tax benefit (22,459 shares, net)		2		731														733
Stock-based compensation expense				631														631
Shares issued for dividend reinvestment plan (31,293 shares)		3		1,255														1,258
Shares issued for employee stock ownership plan (25,139 shares)		3		1,050														1,053
Directors deferred compensation plan ((1,437) shares)				(24	)								24					0
Stock issued for purchase acquisition (75,188 shares)		8		2,527														2,535
Forfeiture of restricted shares ((660) shares)
Balances at June 30, 2011	$	1,109	$	204,284		$	87,188		$	8,375		$	(2,413	)	$	1,517	$	300,060
1 Included in the shares issued for the 10% stock dividend in 2010 were treasury shares of 3,264, and director deferred compensation plan shares of 4,260.

Cash dividends per share have been retroactively adjusted to reflect 10% stock dividend paid on February 15, 2010.

See notes to consolidated financial statements

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Business

Tompkins Financial Corporation, (“Tompkins” or the “Company”) is headquartered in Ithaca, New York and is registered as a Financial Holding Company with the Federal Reserve Board under the Bank Holding Company Act of 1956, as amended. The Company is a locally oriented, community-based financial services organization that offers a full array of products and services, including commercial and consumer banking, leasing, trust and investment management, financial planning and wealth management, insurance, and brokerage services. The Company’s subsidiaries include: three wholly-owned banking subsidiaries, Tompkins Trust Company (the “Trust Company”), The Bank of Castile, The Mahopac National Bank (“Mahopac National Bank”) and AM&M Financial Services, Inc., a wholly owned registered investment advisor (“AM&M”); and a wholly-owned insurance agency subsidiary, Tompkins Insurance Agencies, Inc. (“Tompkins Insurance”). AM&M and the trust division of the Trust Company provide a full array of investment services under the Tompkins Financial Advisors division, including investment management, trust and estate, financial and tax planning as well as life, disability and long-term care insurance services. The Company’s principal offices are located at The Commons, Ithaca, New York, 14851, and its telephone number is (607) 273-3210. The Company’s common stock is traded on the NYSE-Amex under the Symbol “TMP.”

2. Basis of Presentation

The unaudited condensed consolidated financial statements included in this quarterly report have been prepared in accordance with accounting principles generally accepted in the United States of America and the instructions for Form 10-Q and Rule 10-01 of Regulation S-X. In the application of certain accounting policies management is required to make assumptions regarding the effect of matters that are inherently uncertain. These estimates and assumptions affect the reported amounts of certain assets, liabilities, revenues, and expenses in the unaudited condensed consolidated financial statements. Different amounts could be reported under different conditions, or if different assumptions were used in the application of these accounting policies. The accounting policies that management considers critical in this respect are the determination of the allowance for loan and lease losses, the expenses and liabilities associated with the Company’s pension and post-retirement benefits, and the review of its securities portfolio for other than temporary impairment.

In management’s opinion, the unaudited condensed consolidated financial statements reflect all adjustments of a normal recurring nature. The results of operations for the interim periods are not necessarily indicative of the results of operations to be expected for the full year ended December 31, 2011. The unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010. There have been no significant changes to the Company’s accounting policies from those presented in the 2010 Annual Report on Form 10-K. Refer to Note 3- “Accounting Standards Updates” of this Report for a discussion of recently issued accounting guidelines.

Cash and cash equivalents in the consolidated statements of cash flow include cash and noninterest bearing balances due from banks, interest-bearing balances due from banks, Federal funds sold, and money market funds. Management regularly evaluates the credit risk associated with the counterparties to these transactions and believes that the Company is not exposed to any significant credit risk on cash and cash equivalents.

The Company has evaluated subsequent events for potential recognition and/or disclosure and determined that no further disclosures were required.

The consolidated financial information included herein combines the results of operations, the assets, liabilities, and shareholders’ equity of the Company and its subsidiaries. Amounts in the prior periods’ unaudited condensed consolidated financial statements are reclassified when necessary to conform to the current periods’ presentation. All significant intercompany balances and transactions are eliminated in consolidation.

3. Accounting Standards Updates

ASU No. 2010-20, “Receivables (Topic 310) - Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses.” ASU 2010-20 requires entities to provide disclosures designed to facilitate financial statement users’ evaluation of (i) the nature of credit risk inherent in the entity’s portfolio of financing receivables, (ii) how that risk is analyzed and assessed in arriving at the allowance for credit losses and (iii) the changes and reasons for those changes in the allowance for credit losses. Disclosures must be disaggregated by portfolio segment, the level at which an entity develops and documents a systematic method for determining its allowance for credit losses, and class of financing receivable, which is generally a disaggregation of portfolio segment. The required disclosures include, among other things, a rollforward of the allowance for credit losses as well as information about modified, impaired, non-accrual and past due loans and credit quality

indicators. ASU 2010-20 became effective for the Company’s financial statements as of December 31, 2010, as it relates to disclosures required as of the end of a reporting period. Disclosures that relate to activity during a reporting period became effective for the Company’s financial statements beginning on January 1, 2011, and are disclosed in Note 5 “Loans and Leases”.

ASU No. 2010-28, “Intangibles—Goodwill and Other (Topic 350)—When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts.” ASU 2010-28 modifies Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. For those reporting units, an entity is required to perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. In determining whether it is more likely than not that a goodwill impairment exists, an entity should consider whether there are any adverse qualitative factors indicating that an impairment may exist such as if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. ASU 2010-28 became effective for the Company on January 1, 2011 and did not have a significant impact on the Company’s financial statements.

ASU No. 2011-02, “Receivables (Topic 310): A Creditor’s Determination of whether a Restructuring Is a Troubled Debt Restructuring”. ASU 2011-02 clarifies which loan modifications constitute troubled debt restructurings and is intended to assist creditors in determining whether a modification of the terms of a receivable meets the criteria to be considered a troubled debt restructuring, both for purposes of recording an impairment loss and for disclosure of troubled debt restructurings. In evaluating whether a restructuring constitutes a troubled debt restructuring, a creditor must separately conclude, under the guidance clarified by ASU 2011-02, that both of the following exist: (a) the restructuring constitutes a concession; and (b) the debtor is experiencing financial difficulties. ASU 2011-02 will be effective for the Company on July 1, 2011, and applies retrospectively to restructurings occurring on or after January 1, 2011. The Company is currently evaluating the impact of adopting ASU 2011-02 on the Company’s financial statements.

ASU No. 2011-03, “Transfers and Servicing (Topic 860) - Reconsideration of Effective Control for Repurchase Agreements.” ASU 2011-03 is intended to improve financial reporting of repurchase agreements and other agreements that both entitle and obligate a transferor to repurchase or redeem financial assets before their maturity. ASU 2011-03 removes from the assessment of effective control (i) the criterion requiring the transferor to have the ability to repurchase or redeem the financial assets on substantially the agreed terms, even in the event of default by the transferee, and (ii) the collateral maintenance guidance related to that criterion. ASU 2011-03 will be effective for the Company on January 1, 2012 and is not expected to have a significant impact on the Company’s financial statements.

ASU 2011-04, “Fair Value Measurement (Topic 820) - Amendments to Achieve Common Fair Value Measurements and Disclosure Requirements in U.S. GAAP and IFRSs.” ASU 2011-04 amends Topic 820, “Fair Value Measurements and Disclosures,” to converge the fair value measurement guidance in U.S. generally accepted accounting principles and International Financial Reporting Standards. ASU 2011-04 clarifies the application of existing fair value measurement requirements, changes certain principles in Topic 820 and requires additional fair value disclosures. ASU 2011-04 is effective for annual periods beginning after December 15, 2011, and is not expected to have a significant impact on the Company’s financial statements.

ASU 2011-05, “Comprehensive Income (Topic 220) - Presentation of Comprehensive Income.” ASU 2011-05 amends Topic 220, “Comprehensive Income,” to require that all nonowner changes in stockholders’ equity be presented in either a single continuous statement of comprehensive income or in two separate but consecutive statements. Additionally, ASU 2011-05 requires entities to present, on the face of the financial statements, reclassification adjustments for items that are reclassified from other comprehensive income to net income in the statement or statements where the components of net income and the components of other comprehensive income are presented. The option to present components of other comprehensive income as part of the statement of changes in stockholders’ equity was eliminated. ASU 2011-05 is effective for annual periods beginning after December 15, 2011, and is not expected to have a significant impact on the Company’s financial statements.

4. Securities

Available-for-Sale Securities

The following table summarizes available-for-sale securities held by the Company at June 30, 2011:

	Available-for-Sale Securities
June 30, 2011	Amortized Cost1		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
(in thousands)
U.S. Treasury securities	$	2,032	$	74	$	0	$	2,106
Obligations of U.S. Government sponsored entities		351,158		11,454		41		362,571
Obligations of U.S. states and political subdivisions		53,874		2,379		0		56,253
Mortgage-backed securities – residential, issued by
U.S. Government agencies		137,705		5,651		0		143,356
U.S. Government sponsored entities		491,433		18,315		0		509,748
Non-U.S. Government agencies or sponsored entities		7,873		8		451		7,430
U.S. corporate debt securities		5,021		193		0		5,214
Total debt securities		1,049,096		38,074		492		1,086,678
Equity securities		1,022		0		0		1,022
Total available-for-sale securities	$	1,050,118	$	38,074	$	492	$	1,087,700

1 Net of other-than-temporary impairment losses recognized in earnings.

The following table summarizes available-for-sale securities held by the Company at December 31, 2010:

	Available-for-Sale Securities
December 31, 2010	Amortized Cost1		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
(in thousands)
U.S. Treasury securities	$	2,043	$	86	$	0	$	2,129
Obligations of U.S. Government sponsored entities		402,057		7,372		1,989		407,440
Obligations of U.S. states and political subdivisions		60,707		2,339		9		63,037
Mortgage-backed securities – residential, issued by
U.S. Government agencies		143,319		3,233		539		146,013
U.S. Government sponsored entities		393,331		13,568		1,421		405,478
Non-U.S. Government agencies or sponsored entities		9,636		3		356		9,283
U.S. corporate debt securities		5,024		179		0		5,203
Total debt securities		1,016,117		26,780		4,314		1,038,583
Equity securities		1,025		0		0		1,025
Total available-for-sale securities	$	1,017,142	$	26,780	$	4,314	$	1,039,608

1 Net of other-than-temporary impairment losses recognized in earnings.

Held-to-Maturity Securities

The following table summarizes held-to-maturity securities held by the Company at June 30, 2011:

June 30, 2011	Held-to-Maturity Securities
(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Obligations of U.S. states and political subdivisions	$	29,761	$	678	$	0	$	30,439
Total held-to-maturity debt securities	$	29,761	$	678	$	0	$	30,439

The following table summarizes held-to-maturity securities held by the Company at December 31, 2010:

December 31, 2010	Held-to-Maturity Securities
(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Obligations of U.S. states and political subdivisions	$	54,973	$	1,155	$	64	$	56,064
Total held-to-maturity debt securities	$	54,973	$	1,155	$	64	$	56,064

Realized gains on available-for-sale securities were $0 and $209,000 in the second quarter and six months ending June 30, 2011, respectively, and $58,000 and $176,000 in the same periods of 2010; realized losses on available-for-sale securities were $0 and $114,000 in the second quarter and six months ending June 30, 2011, respectively, and $0 in the same time periods of 2010.

The following table summarizes available-for-sale securities that had unrealized losses at June 30, 2011:

	Less than 12 Months				12 Months or Longer				Total
(in thousands)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Obligations of U.S. Government sponsored entities	$	16,299	$	41	$	0	$	0	$	16,299	$	41

Mortgage-backed securities – residential, issued by
Non-U.S. Government agencies or sponsored entities		2,291		195		4,486		256		6,777		451
Total available-for-sale securities	$	18,590	$	236	$	4,486	$	256	$	23,076	$	492

As of June 30, 2011, there were no held-to-maturity securities with unrealized losses.

The following table summarizes available-for-sale securities that had unrealized losses at December 31, 2010:

	Less than 12 Months				12 Months or Longer				Total
(in thousands)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses

Obligations of U.S. Government sponsored entities	$	93,167	$	1,989	$	0	$	0	$	93,167	$	1,989
Obligations of U.S. states and political subdivisions		1,771		9		0		0		1,771		9

Mortgage-backed securities – residential, issued by
U.S. Government agencies		44,288		539		0		0		44,288		539
U.S. Government sponsored entities		119,102		1,421		0		0		119,102		1,421
Non-U.S. Government agencies or sponsored entities		0		0		8,343		356		8,343		356
Total available-for-sale securities	$	258,328	$	3,958	$	8,343	$	356	$	266,671	$	4,314

The following table summarizes held-to-maturity securities that had unrealized losses at December 31, 2010:

	Less than 12 Months				12 Months or Longer				Total
(in thousands)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses

Obligations of U.S. states and political subdivisons	$	14,947	$	63	$	14	$	1	$	14,961	$	64

Total held-to-maturity securities	$	14,947	$	63	$	14	$	1	$	14,961	$	64

The gross unrealized losses reported for mortgage-backed securities-residential relate to investment securities issued by U.S. government sponsored entities such as Federal National Mortgage Association and Federal Home Loan Mortgage Corporation, and U.S. government agencies such as Government National Mortgage Association, and non U.S. Government agencies or sponsored entities. Total gross unrealized losses were primarily attributable to changes in interest rates and levels of market liquidity, relative to when the investment securities were purchased, and not due to the credit quality of the investment securities.

The Company does not intend to sell the securities that are in an unrealized loss position and it is not more-likely-than not that the Company will be required to sell these available for sale investment securities, before recovery of their amortized cost basis, which may be at maturity. Accordingly, as of June 30, 2011, and December 31, 2010, management believes the unrealized losses detailed in the tables above are not other-than-temporary.

Ongoing Assessment of Other-Than-Temporary Impairment

On a quarterly basis, the Company performs an assessment to determine whether there have been any events or economic circumstances indicating that a security with an unrealized loss has suffered other-than-temporary impairment. A debt security is considered impaired if the fair value is less than its amortized cost basis at the reporting date. If impaired, the Company then assesses whether the unrealized loss is other-than-temporary. An unrealized loss on a debt security is generally deemed to be other-than-temporary and a credit loss is deemed to exist if the present value, discounted at the security’s effective rate, of the expected future cash flows is less than the amortized cost basis of the debt security. As a result, the credit loss component of an other-than-temporary impairment write-down for debt securities is recorded in earnings while the remaining portion of the impairment loss is recognized, net of tax, in other comprehensive income provided that the Company does not intend to sell the underlying debt security and it is more-likely-than not that the Company would not have to sell the debt security prior to recovery of the unrealized loss, which may be to maturity. If the Company intended to sell any securities with an unrealized loss or it is more-likely-than not that the Company would be required to sell the investment securities, before recovery of their amortized cost basis, then the entire unrealized loss would be recorded in earnings.

The Company considers the following factors in determining whether a credit loss exists and the period over which the debt security is expected to recover.

The length of time and the extent to which the fair value has been less than the amortized cost basis;

The level of credit enhancement provided by the structure which includes, but is not limited to, credit subordination positions, excess spreads, overcollateralization, and protective triggers;

Changes in the near term prospects of the issuer or underlying collateral of a security, such as changes in default rates, loss severities given default and significant changes in prepayment assumptions;

The level of excess cash flow generated from the underlying collateral supporting the principal and interest payments of the debt securities; and

Any adverse change to the credit conditions of the issuer or the security such as credit downgrades by the rating agencies.

was recognized in other comprehensive income in the consolidated statements of condition and changes in shareholders’ equity. In 2010 the Company recorded an additional credit loss component of other-than-temporary charge of $34,000. The Company’s review of these securities as of June 30, 2011 determined that no additional impairment charges were necessary. As of June 30, 2011, the carrying value of these securities exceeded their fair value by $443,000. A continuation or worsening of current economic conditions may result in additional credit loss component of other-than-temporary impairment losses related to these investments.

The following table summarizes the roll-forward of credit losses on debt securities held by the Company for which a portion of an other-than-temporary impairment is recognized in other comprehensive income:

	Three Months Ended
(in thousands)	06/30/2011		06/30/2010
Credit losses at beginning of the period	$	180	$	146
Credit losses related to securities for which an other-than-temporary impairment was not previously recognized		0		0
Ending balance of credit losses on debt securities held for which a portion of an other-than-temporary impairment was recognized in other comprehensive income	$	180	$	146

The amortized cost and estimated fair value of debt securities by contractual maturity are shown in the following table. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties. Mortgage-backed securities are shown separately since they are not due at a single maturity date.

June 30, 2011
(in thousands)	Amortized Cost1		Fair Value
Available-for-sale securities:
Due in one year or less	$	7,729	$	7,841
Due after one year through five years		274,247		283,797
Due after five years through ten years		120,948		125,100
Due after ten years		9,160		9,406
Total		412,084		426,144
Mortgage-backed securities		637,011		660,534
Total available-for-sale debt securities	$	1,049,095	$	1,086,678

1 Net of other-than-temporary impairment losses recognized in earnings.

December 31, 2010
(in thousands)	Amortized Cost1		Fair Value
Available-for-sale securities:
Due in one year or less	$	7,770	$	7,867
Due after one year through five years		309,193		312,952
Due after five years through ten years		143,682		147,546
Due after ten years		9,186		9,444
Total		469,831		477,809
Mortgage-backed securities		546,286		560,774
Total available-for-sale debt securities	$	1,016,117	$	1,038,583

1 Net of other-than-temporary impairment losses recognized in earnings.

June 30, 2011
(in thousands)	Amortized Cost		Fair Value
Held-to-maturity securities:
Due in one year or less	$	13,592	$	13,650
Due after one year through five years		11,507		11,989
Due after five years through ten years		3,630		3,768
Due after ten years		1,032		1,032
Total held-to-maturity debt securities	$	29,761	$	30,439

December 31, 2010
(in thousands)	Amortized Cost		Fair Value
Held-to-maturity securities:
Due in one year or less	$	34,645	$	34,692
Due after one year through five years		15,378		16,157
Due after five years through ten years		3,765		4,024
Due after ten years		1,185		1,191
Total held-to-maturity debt securities	$	54,973	$	56,064

The Company also holds non-marketable Federal Home Loan Bank New York (“FHLBNY”) stock and non-marketable Federal Reserve Bank (“FRB”) stock, both of which are required to be held for regulatory purposes and for borrowing availability. The required investment in FHLBNY stock is tied to the Company’s borrowing levels with the FHLBNY. Holdings of FHBLNY stock and FRB stock totaled $16.7 million and $2.1 million at June 30, 2011, respectively, and $19.9 million and $2.1 million at December 31, 2010, respectively. The FHLBNY continues to pay dividends and repurchase its stock. As such, the Company has not recognized any impairment on its holdings of FHLBNY stock.

Trading Securities

The following summarizes trading securities, at estimated fair value, as of:

(in thousands)	06/30/2011		12/31/2010

Obligations of U.S. Government sponsored entities	$	12,967	$	13,139
Mortgage-backed securities – residential, issued by U.S. Government sponsored entities		8,135		9,698
Total	$	21,102	$	22,837

The net gain on trading account securities, which reflects mark-to-market adjustments, totaled $165,000 and $115,000 for the three and six months ended June 30, 2011, respectively, and $291,000 and $381,000 for the three and six months ended June 30, 2010, respectively.

5. Loans and Leases

Loans and Leases at June 30, 2011, and December 31, 2010 were as follows:

(in thousands)	06/30/2011			12/31/2010
Commercial and industrial
Agriculture	$	54,700		$	65,918
Commercial and industrial other		393,669			409,432
Subtotal commercial and industrial		448,369			475,350
Commercial real estate
Construction		45,617			58,519
Agriculture		49,159			48,485
Commercial real estate other		666,523			619,458
Subtotal commercial real estate		761,299			726,462
Residential real estate
Home equity		160,437			164,765
Mortgages		476,747			462,032
Subtotal residential real estate		637,184			626,797
Consumer and other
Indirect		36,334			41,668
Consumer and other		31,375			31,757
Subtotal consumer and other		67,709			73,425
Leases		7,850			9,949
Total loans and leases		1,922,411			1,911,983
Less: unearned income and deferred costs and fees		(1,695	)		(1,625	)
Total loans and leases, net of unearned income and deferred costs and fees	$	1,920,716		$	1,910,358

The Company has adopted comprehensive lending policies, underwriting standards and loan review procedures. Management reviews these policies and procedures on a regular basis. The Company discussed its lending policies and underwriting guidelines for its various lending portfolios in Note 5 – “Loans and Leases” in the Notes to Consolidated Financial Statements contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010. There have been no significant changes in these policies and guidelines. As such, these policies are reflective of new originations as well as those balances held at June 30, 2011. The Company’s Board of Directors approves the lending policies at least annually. The Company recognizes that exceptions to policy guidelines may occasionally occur and has established procedures for approving exceptions to these policy guidelines. Management has also implemented reporting systems to monitor loan originations, loan quality, concentrations of credit, loan delinquencies and nonperforming loans and potential problem loans.

Loans are considered past due if the required principal and interest payments have not been received as of the date such payments are due. Generally loans are placed on nonaccrual status if principal or interest payments become 90 days or more past due and/or management deem the collectability of the principal and/or interest to be in question, as well as when required by regulatory requirements. When interest accrual is discontinued, all unpaid accrued interest is reversed. Payments received on loans on nonaccrual are generally applied to reduce the principal balance of the loan. Loans are generally returned to accrual status when all the principal and interest amounts contractually due are brought current, the borrower has established a payment history, and future payments are reasonably assured.

An age analysis of past due loans, segregated by class of loans, as of June 30, 2011 is provided below.

(in thousands)	30-89 days		90 days or more		Current Loans		Total Loans			90 days and accruing		Nonaccrual
Commercial and industrial
Agriculture	$	67	$	0	$	54,633	$	54,700		$	0	$	154
Commercial and industrial other		498		1,492		391,679		393,669			785		5,229
Subtotal commercial and industrial		565		1,492		446,312		448,369			785		5,383
Commercial real estate
Construction		18		12,827		32,772		45,617			0		12,983
Agriculture		220		207		48,732		49,159			207		26
Commercial real estate other		2,958		5,633		657,932		666,523			0		14,532
Subtotal commercial real estate		3,196		18,667		739,436		761,299			207		27,541
Residential real estate
Home equity		285		575		159,577		160,437			380		580
Mortgages		2,762		5,490		468,495		476,747			1,140		4,738
Subtotal residential real estate		3,047		6,065		628,072		637,184			1,520		5,318
Consumer and other
Indirect		896		187		35,251		36,334			0		202
Consumer and other		0				31,375		31,375			0		0
Subtotal consumer and other		896		187		66,626		67,709			0		202
Leases		16		0		7,834		7,850			0		13
Total loans and leases		7,720		26,411		1,888,280		1,922,411			2,512		38,457
Less: unearned income and deferred costs and fees		0		0		0		(1,695	)		0		0
Total loans and leases, net of unearned income and deferred costs and fees	$	7,720	$	26,411	$	1,888,280	$	1,920,716		$	2,512	$	38,457

An age analysis of past due loans, segregated by class of loans, as of December 31, 2010 is provided below.

(in thousands)	30-89 days		90 days or more		Current Loans		Total Loans			90 days and accruing		Nonaccrual
Commercial and industrial
Agriculture		50		118		65,750		65,918			0		165
Commercial and industrial other		3,131		1,443		404,858		409,432			842		7,106
Subtotal commercial and industrial		3,181		1,561		470,608		475,350			842		7,271
Commercial real estate
Construction		8		176		58,335		58,519			0		13,003
Agriculture		189		0		48,296		48,485			0		0
Commercial real estate other		1,943		4,094		613,421		619,458			0		11,788
Subtotal commercial real estate		2,140		4,270		720,052		726,462			0		24,791
Residential real estate
Home equity		262		1,434		163,069		164,765			368		1,429
Mortgages		4,709		6,257		451,066		462,032			0		7,682
Subtotal residential real estate		4,971		7,691		614,135		626,797			368		9,111
Consumer and other
Indirect		926		311		40,431		41,668			7		309
Consumer and other		0		0		31,757		31,757			0		0
Subtotal consumer and other		926		311		72,188		73,425			7		309
Leases		0		0		9,949		9,949			0		19
Total loans and leases		11,218		13,833		1,886,932		1,911,983			1,217		41,501
Less: unearned income and deferred costs and fees		0		0		0		(1,625	)		0		0
Total loans and leases, net of unearned income and deferred costs and fees	$	11,218	$	13,833	$	1,886,932	$	1,910,358		$	1,217	$	41,501

The principal balances of nonperforming loans and leases, including impaired loans and leases are detailed in the table below.

(in thousands)	06/30/2011		12/31/2010
Loans 90 days past due and accruing	$	2,512	$	1,217
Nonaccrual loans		38,457		41,501
Troubled debt restructurings not included above		0		2,564
Nonperforming loans and leases	$	40,969	$	45,282

6. Allowance for Loan and Lease Losses

The following tables detail activity in the allowance for possible loan and lease losses by portfolio segment for the three and six months ended June 30, 2011 and 2010. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories.

Three months ended June 30, 2011

(in thousands)	Commercial and Industrial			Commercial Real Estate			Residential Real Estate			Consumer and Other			Finance Leases			Total
Allowance for credit losses:

Beginning balance	$	8,694		$	13,891		$	3,809		$	1,587		$	54		$	28,035

Charge-offs		(668	)		(58	)		(97	)		(102	)		0			(925	)
Recoveries		66			64			31			85			0			246
Provision		(252	)		547			682			35			(7	)		1,005
Ending Balance	$	7,840		$	14,444		$	4,425		$	1,605		$	47		$	28,361

Three months ended June 30, 2010

(in thousands)	Commercial and Industrial			Commercial Real Estate			Residential Real Estate			Consumer and Other			Finance Leases			Total
Allowance for credit losses:

Beginning balance	$	7,200		$	12,463		$	3,373		$	2,251		$	79		$	25,366

Charge-offs		(293	)		(117	)		(96	)		(298	)		0			(804	)
Recoveries		285			149			32			94			0			560
Provision		85			964			198			168			(7	)		1,408
Ending Balance	$	7,277		$	13,459		$	3,507		$	2,215		$	72		$	26,530

Six months ended June 30, 2011

(in thousands)	Commercial and Industrial			Commercial Real Estate			Residential Real Estate			Consumer and Other			Finance Leases			Total
Allowance for credit losses:

Beginning balance	$	7,824		$	14,445		$	3,526		$	1,976		$	61		$	27,832

Charge-offs		(1,257	)		(369	)		(1,195	)		(268	)		0			(3,089	)
Recoveries		393			105			32			173			0			703
Provision		880			263			2,062			(276	)		(14	)		2,915
Ending Balance	$	7,840		$	14,444		$	4,425		$	1,605		$	47		$	28,361

Six months ended June 30, 2010

(in thousands)	Commercial and Industrial			Commercial Real Estate			Residential Real Estate			Consumer and Other			Finance Leases			Total
Allowance for credit losses:

Beginning balance	$	7,304		$	11,119		$	3,616		$	2,230		$	81		$	24,350

Charge-offs		(989	)		(322	)		(362	)		(534	)		0			(2,207	)
Recoveries		377			199			33			187			0			796
Provision		585			2,463			220			332			(9	)		3,591
Ending Balance	$	7,277		$	13,459		$	3,507		$	2,215		$	72		$	26,530

At June 30, 2011 and December 31, 2010, the allocation of the allowance for loan and lease losses summarized on the basis of the Company's impairment methodology was as follows:

(in thousands)	Commercial and Industrial		Commercial Real Estate		Residential Real Estate		Consumer and Other		Finance Leases		Total

June 30, 2011
Individually evaluated for impairment	$	95	$	2,475	$	0	$	0	$	0	$	2,570
Collectively evaluated for impairment		7,745		11,969		4,425		1,605		47		25,791
Ending balance	$	7,840	$	14,444	$	4,425	$	1,605	$	47	$	28,361

December 31, 2010
Individually evaluated for impairment	$	682	$	2,554	$	0	$	0	$	0	$	3,236
Collectively evaluated for impairment		7,142		11,891		3,526		1,976		61		24,596
Ending balance	$	7,824	$	14,445	$	3,526	$	1,976	$	61	$	27,832

The recorded investment in loans and leases summarized on the basis of the Company's impairment methodology as of June 30, 2011 and December 31, 2010 was as follows:

(in thousands)	Commercial and Industrial		Commercial Real Estate		Residential Real Estate		Consumer and Other		Finance Leases		Total

June 30, 2011
Individually evaluated for impairment	$	5,120	$	26,099	$	0	$	0	$	0	$	31,219
Collectively evaluated for impairment		443,249		735,200		637,184		67,709		7,850		1,891,192
Total	$	448,369	$	761,299	$	637,184	$	67,709	$	7,850	$	1,922,411

December 31, 2010
Individually evaluated for impairment	$	5,617	$	29,622	$	0	$	0	$	0	$	35,239
Collectively evaluated for impairment		469,733		696,840		626,797		73,425		9,949		1,876,744
Total	$	475,350	$	726,462	$	626,797	$	73,425	$	9,949	$	1,911,983

Management reviews the appropriateness of the allowance for loan and lease losses (“allowance”) on a regular basis. Management considers the accounting policy relating to the allowance to be a critical accounting policy, given the inherent uncertainty in evaluating the levels of the allowance required to cover credit losses in the portfolio and the material effect that assumptions could have on the Company’s results of operations. The Company has developed a methodology to measure the amount of estimated loan loss exposure inherent in the loan portfolio to assure that an appropriate allowance is maintained. The Company’s methodology is based upon guidance provided in SEC Staff Accounting Bulletin No. 102, Selected Loan Loss Allowance Methodology and Documentation Issues and allowance allocations are calculated in accordance with ASC Topic 310, Receivables and ASC Topic 450, Contingencies.

The Company’s methodology for determining and allocating the allowance for loan and lease losses focuses on ongoing reviews of larger individual loans and leases, historical net charge-offs, delinquencies in the loan and lease portfolio, the level of impaired and nonperforming loans, values of underlying loan and lease collateral, the overall risk characteristics of the portfolios, changes in character or size of the portfolios, geographic location, current economic conditions, changes in

capabilities and experience of lending management and staff, and other relevant factors. The various factors used in the methodologies are reviewed on a regular basis.

At least annually, management reviews all commercial and commercial real estate loans exceeding a certain threshold and assigns a risk rating. The Company uses an internal loan rating system of pass credits, special mention loans, substandard loans, doubtful loans, and loss loans (which are fully charged off). The definitions of “special mention”, “substandard”, “doubtful” and “loss” are consistent with banking regulatory definitions. Factors considered in assigning loan ratings include: the customer’s ability to repay based upon customer’s expected future cash flow, operating results, and financial condition; the underlying collateral, if any; and the economic environment and industry in which the customer operates. Special mention loans have potential weaknesses that if left uncorrected may result in deterioration of the repayment prospects and a downgrade to a more severe risk rating. A substandard loan credit has a well-defined weakness which makes payment default or principal exposure likely, but not yet certain. There is a possibility that the Company will sustain some loss if the deficiencies are not corrected. A doubtful loan has a high possibility of loss, but the extent of the loss is difficult to quantify because of certain important and reasonably specific pending factors.

At least quarterly, management reviews all commercial and commercial real estate loans and leases and agriculturally related loans with an outstanding principal balance of over $500,000 that are internally risk rated special mention or worse, giving consideration to payment history, debt service payment capacity, collateral support, strength of guarantors, local market trends, industry trends, and other factors relevant to the particular borrowing relationship. Through this process, management identifies impaired loans. For loans and leases considered impaired, estimated exposure amounts are based upon collateral values or present value of expected future cash flows discounted at the original effective interest rate of each loan. For commercial loans, commercial mortgage loans, and agricultural 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 net loss experience and current charge-off trends, past due status, and management’s judgment of the effects of current economic conditions on portfolio performance. In determining and assigning historical loss factors to the various homogeneous portfolios, the Company calculates average net losses over a period of time and compares this average to current levels and trends to ensure that the calculated average loss factor is reasonable.

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 allowance as of June 30, 2011, considers the allowance to be appropriate, under adversely different conditions or assumptions, the Company would need to increase the allowance.

A loan is impaired when, based on current information and events, it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan agreement. Impaired loans consist of our non-homogenous nonaccrual loans and loans that are 90 days or more past due. Specific reserves on individually identified impaired loans that are not collateral dependent are measured based on the present value of expected future cash flows discounted at the original effective interest rate of each loan. For loans that are collateral dependent, impairment is measured based on the fair value of the collateral less estimated selling costs, and such impaired amounts are generally charged off. The majority of impaired loans are collateral dependant impaired loans that have limited exposure or require limited specific reserves because of the amount of collateral support with respect to these loans, and previous charge-offs. Interest payments on impaired loans are typically applied to principal unless collectability of the principal amount is reasonably assured. In these cases, interest is recognized on a cash basis.

Impaired loans are set forth in the tables below as of June 30, 2011 and December 31, 2010.

June 30, 2011
(in thousands)	Recorded Investment			Unpaid Principal Balance		Related Allowance		Average Recorded Investment				Interest Income Recognized
								Quarter to date		Year to date		Quarter to date		Year to date
With no related allowance

Commercial and industrial
Commercial and industrial other			2,353		2,874		0		2,710		2,768		0		0
Commercial real estate
Commercial real estate other			9,230		9,559		0		10,469		10,977		0		10
Subtotal		$	11,583	$	12,433	$	0	$	13,179		13,745	$	0		10

With related allowance

Commercial and industrial
Commercial and industrial other			976		2,074		95		2,001		2,367		0		0
Commercial real estate
Construction			13,193		13,226		1,927		13,010		13,113		0		0
Commercial real estate other			5,467		4,091		548		4,992		4,052		0		0
Subtotal		$	19,636	$	19,391	$	2,570	$	20,003		19,532	$	0		0
Total		$	31,219	$	31,824	$	2,570	$	33,182		33,277	$	0		10

December 31, 2010
(in thousands)	Recorded Investment			Unpaid Principal Balance		Related Allowance
With no related allowance

Commercial and industrial
Agriculture		$	724	$	724	$	0
Commercial and industrial other			3,393		4,336		0
Commercial real estate
Commercial real estate other			15,675		15,831		0
Subtotal		$	19,792	$	20,891	$	0

With related allowance

Commercial and industrial
Commercial and industrial other			1,500		1,500		682
Commercial real estate
Construction			12,816		13,400		1,927
Commercial real estate other			1,131		1,303		627
Subtotal		$	15,447	$	16,203	$	3,236
Total		$	35,239	$	37,094	$	3,236

The average recorded investment in impaired loans and leases for the three and six months ended June 30, 2010 was $30.0 and $30.6 million respectively, and interest income recognized on these impaired loans and leases, all collected in cash, was $42,000 and $147,000 for the same period.

The following tables present credit quality indicators (internal risk grade) by class of commercial and industrial loans and commercial real estate loans as of June 30, 2011 and December 31, 2010.

June 30, 2011
	Commercial and Industrial Other			Commercial and Industrial Agriculture			Commercial Real Estate Other			Commercial Real Estate Agriculture			Commercial Real Estate Construction			Total

(in thousands)
Internal risk grade:
Pass		$	347,334		$	44,970		$	594,697		$	38,893		$	20,851		$	1,046,745
Special Mention			17,344			6,813			35,931			8,550			11,832			80,470
Substandard			28,991			2,917			35,372			1,716			11,007			80,003
Doubtful			0			0			523			0			1,927			2,450
Total		$	393,669		$	54,700		$	666,523		$	49,159		$	45,617		$	1,209,668

December 31, 2010
	Commercial and Industrial Other			Commercial and Industrial Agriculture			Commercial Real Estate Other			Commercial Real Estate Agriculture			Commercial Real Estate Construction			Total

(in thousands)
Internal risk grade:
Pass		$	355,153		$	53,302		$	537,195		$	37,894		$	45,703		$	1,029,247
Special Mention			28,478			3,570			43,138			5,734			0			80,920
Substandard			25,801			9,046			39,125			4,857			12,816			91,645
Doubtful			0			0			0			0			0			0
Total		$	409,432		$	65,918		$	619,458		$	48,485		$	58,519		$	1,201,812

The following tables present credit quality indicators by class of residential real estate loans and by class of consumer loans. Nonperforming loans include nonaccrual, impaired, and loans 90 days past due and accruing interest. All other loans are considered performing as of June 30, 2011 and December 31, 2010.

June 30, 2011
(in thousands)	Residential Home Equity		Residential Mortgages		Consumer Indirect		Consumer Other		Total
Performing	$	159,477	$	470,869	$	36,132	$	31,375	$	697,853
Nonperforming		960		5,878		202		0		7,040
Total	$	160,437	$	476,747	$	36,334	$	31,375	$	704,893

December 31, 2010
(in thousands)	Residential Home Equity		Residential Mortgages		Consumer Indirect		Consumer Other		Total
Performing	$	162,968	$	454,350	$	41,352	$	31,757	$	690,427
Nonperforming		1,797		7,682		316		0		9,795
Total	$	164,765	$	462,032	$	41,668	$	31,757	$	700,222

7. Earnings Per Share

The Company follows the provisions of FASB ASC Topic 260, Earnings Per Share (“EPS”). A computation of Basic EPS and Diluted EPS for the three and six months ending June 30, 2011, and 2010 is presented in the table below.

Three months ended June 30, 2011
(in thousands except share and per share data)	Net Income (Numerator)		Weighted Average Shares (Denominator)		Per Share Amount
Basic EPS:
Net income attributable to Tompkins Financial Corporation	$	9,400		10,974,615	$	0.86

Effect of potentially dilutive common shares:				41,900

Diluted EPS:

Net income attributable to Tompkins Financial Corporation plus assumed conversions	$	9,400		11,016,515	$	0.85

The effect of dilutive securities calculation for the three-month period ended June 30, 2011, excludes stock options and stock appreciation rights covering an aggregate of 679,245 shares of common stock because they are anti-dilutive.

Three months ended June 30, 2010
(in thousands except share and per share data)	Net Income (Numerator)		Weighted Average Shares (Denominator)		Per Share Amount
Basic EPS:
Net income attributable to Tompkins Financial Corporation	$	9,033		10,818,218	$	0.84

Effect of potentially dilutive common shares:				58,203

Diluted EPS:

Net income attributable to Tompkins Financial Corporation plus assumed conversions	$	9,033		10,876,421	$	0.83

The effect of dilutive securities calculation for the three-month period ended June 30, 2010, excludes stock options and stock appreciation rights covering an aggregate of 690,895 shares of common stock because they are anti-dilutive.

Six months ended June 30, 2011
(in thousands except share and per share data)	Net Income (Numerator)		Weighted Average Shares (Denominator)		Per Share Amount
Basic EPS:
Net income attributable to Tompkins Financial Corporation	$	18,173		10,940,099	$	1.66

Effect of potentially dilutive common shares:				46,188

Diluted EPS:

Net income attributable to Tompkins Financial Corporation plus assumed conversions	$	18,173		10,986,287	$	1.65

The effect of dilutive securities calculation for the six-month period ended June 30, 2011, excludes stock options and stock appreciation rights covering an aggregate of 691,968 shares of common stock because they are anti-dilutive.

Six months ended June 30, 2010
(in thousands except share and per share data)	Net Income (Numerator)		Weighted Average Shares (Denominator)		Per Share Amount
Basic EPS:
Net income attributable to Tompkins Financial Corporation	$	17,449		10,764,576	$	1.62

Effect of potentially dilutive common shares:				55,320

Diluted EPS:

Net income attributable to Tompkins Financial Corporation plus assumed conversions	$	17,449		10,819,896	$	1.61

The effect of dilutive securities calculation for the six-month period ended June 30, 2010, excludes stock options and stock appreciation rights covering an aggregate of 714,530 shares of common stock because they are anti-dilutive.

8. Comprehensive Income

	Three Months Ended						Six Months Ended
(in thousands)	06/30/2011			06/30/2010			06/30/2011			06/30/2010
Net income attributable to noncontrolling interests and
Tompkins Financial Corporation	$	9,433		$	9,066		$	18,238		$	17,514

Other comprehensive income loss, net of tax:

Unrealized gain on available-for-sale securities:
Net unrealized holding gain on available-for-sale
securities arising during the period.		8,067			7,056			9,128			8,598
Memo: Pre-tax net unrealized holding gain		13,442			11,759			15,211			14,328

Reclassification adjustment for net realized gain on sale
included in of available-for-sale securities		-			(35	)		(57	)		(106	)
Memo: Pre-tax net realized gain		-			(58	)		(95	)		(177	)


Employee benefit plans:
Amortization of actuarial losses, prior service cost, and transition obligation		290			295			564			560
Memo: Pre-tax amounts		482			494			940			935

Other comprehensive income		8,357			7,316			9,635			9,052

Subtotal comprehensive income attributable to noncontrolling interests and Tompkins Financial Corporation		17,790			16,382			27,873			26,566
Less: Other comprehensive income attributable to noncontrolling interests		(33	)		(33	)		(65	)		(65	)
Total comprehensive income attributable to Tompkins Financial Corporation	$	17,757		$	16,349		$	27,808		$	26,501

9. Employee Benefit Plans

The following table sets forth the amount of the net periodic benefit cost recognized by the Company for the Company’s pension plan, post-retirement plan (Life and Health), and supplemental employee retirement plans (“SERP”) including the following components: service cost; interest cost; expected return on plan assets for the period; amortization of the unrecognized transitional obligation or transition asset; and the amounts of recognized gains and losses, prior service cost recognized, and gain or loss recognized due to settlement or curtailment.

Components of Net Period Benefit Cost

	Pension Benefits						Life and Health				SERP Benefits
	Three Months Ended						Three Months Ended				Three Months Ended
(in thousands)	06/30/2011			06/30/2010			06/30/2011		06/30/2010		06/30/2011		06/30/2010
Service cost	$	570		$	538		$	31	$	23	$	49	$	46
Interest cost		675			646			97		96		156		147
Expected return on plan assets for the period		(930	)		(675	)		0		0		0		0
Amortization of transition liability		0			0			17		17		0		0
Amortization of prior service cost		(33	)		(29	)		2		4		25		25
Amortization of net loss		436			463			0		0		34		26
FAS 88 curtailment gain		0			(39	)		0		0		0		0
Net periodic benefit cost	$	718		$	904		$	147	$	140	$	264	$	244

	Pension Benefits						Life and Health				SERP Benefits
	Six Months Ended						Six Months Ended				Six Months Ended
(in thousands)	06/30/2011			06/30/2010			06/30/2011		06/30/2010		06/30/2011		06/30/2010
Service cost	$	1,134		$	1,076		$	66	$	47	$	100	$	93
Interest cost		1,339			1,292			190		192		310		294
Expected return on plan assets for the period		(1,811	)		(1,350	)		0		0		0		0
Amortization of transition liability		0			0			34		33		0		0
Amortization of prior service cost		(62	)		(59	)		6		8		50		50
Amortization of net loss		846			926			1		0		65		52
FAS 88 curtailment gain		0			(77	)		0		0		0		0
Net periodic benefit cost	$	1,446		$	1,808		$	297	$	280	$	525	$	489

The Company realized approximately $564,000 and $560,000, net of tax, as amortization of amounts previously recognized in accumulated other comprehensive income, for the six months ended June 30, 2011 and 2010, respectively.

The Company is not required to contribute to the pension plan in 2011, but it may make voluntary contributions. The Company contributed $2.8 million to the pension plan in the first six months of 2011.

In the first quarter of 2010, the Company stopped admitting new employees to its noncontributory defined-benefit retirement and pension plan. Employees hired after January 1, 2010 participate in a defined contribution plan.

10. Other Income and Operating Expense

Other income and operating expense totals are presented in the table below. Components of these totals exceeding 1% of the aggregate of total noninterest income and total noninterest expenses for any of the years presented below are stated separately.

	Three Months Ended				Six Months Ended
(in thousands)	06/30/2011		06/30/2010		06/30/2011		06/30/2010
Noninterest Income
Other service charges	$	544	$	489	$	1,105	$	1,082
Increase in cash surrender value of corporate owned life insurance		350		318		761		711
Net gain on sale of loans		136		147		300		339
Other income		360		226		1,053		354
Total other income	$	1,390	$	1,180	$	3,219	$	2,486
Noninterest Expenses
Marketing expense	$	921	$	968	$	1,783	$	2,020
Professional fees		847		977		1,446		1,793
Software licensing and maintenance		839		918		1,864		1,818
Cardholder expense		485		456		965		873
Other expenses		3,621		3,162		6,862		6,043
Total other operating expense	$	6,713	$	6,481	$	12,920	$	12,547

11. Financial Guarantees

The Company currently does not issue any guarantees that would require liability recognition or disclosure, other than standby letters of credit. The Company extends standby letters of credit to its customers in the normal course of business. The standby letters of credit are generally short-term. As of June 30, 2011, the Company’s maximum potential obligation under standby letters of credit was $53.8 million compared to $54.4 million at December 31, 2010. Management uses the same credit policies to extend standby letters of credit that it uses for on-balance sheet lending decisions and may require collateral to support standby letters of credit based upon its evaluation of the counterparty. Management does not anticipate any significant losses as a result of these transactions, and has determined that the fair value of standby letters of credit is not significant.

12. Segment and Related Information

The Company manages its operations through 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, including holding company activities, are considered banking. The Company accounts for intercompany fees and services at an estimated fair value according to regulatory requirements for the services provided. Intercompany items relate primarily to the use of human resources, information systems, accounting and marketing services provided by any of the Banks and the holding company. All other accounting policies are the same as those described in the summary of significant accounting policies in the 2010 Annual Report on Form 10-K.

Summarized financial information concerning the Company’s reportable segments and the reconciliation to the Company’s consolidated results is shown in the following table. Investment in subsidiaries is netted out of the presentations below. The “Intercompany” column identifies the intercompany activities of revenues, expenses and other assets between the banking and financial services segments.

As of and for the three months ended June 30, 2011
(in thousands)	Banking		Financial Services		Intercompany			Consolidated
Interest income	$	34,517	$	67	$	(30	)	$	34,554
Interest expense		6,632		0		(30	)		6,602
Net interest income		27,885		67		0			27,952
Provision for loan and lease losses		1,005		0		0			1,005
Noninterest income		5,015		7,321		(323	)		12,013
Noninterest expense		19,622		5,864		(323	)		25,163
Income before income tax expense		12,273		1,524		0			13,797
Income tax expense		3,825		539		0			4,364
Net Income attributable to noncontrolling interests and Tompkins Financial Corporation		8,448		985		0			9,433
Less: Net income attributable to noncontrolling interests		33		0		0			33
Net Income attributable to Tompkins Financial Corporation	$	8,415	$	985	$	0		$	9,400

Depreciation and amortization	$	1,126	$	76	$	0		$	1,202
Assets		3,261,068		31,149		(4,619	)		3,287,598
Goodwill		23,600		20,432		0			44,032
Other intangibles, net		2,679		1,791		0			4,470
Net loans and leases		1,892,355		0		0			1,892,355
Deposits		2,576,449		0		(4,441	)		2,572,008
Total equity		275,759		24,301		0			300,060

As of and for the three months ended June 30, 2010
(in thousands)	Banking		Financial Services		Intercompany			Consolidated
Interest income	$	36,377	$	79	$	(6	)	$	36,450
Interest expense		8,349		1		(6	)		8,344
Net interest income		28,028		78		0			28,106
Provision for loan and lease losses		1,408		0		0			1,408
Noninterest income		4,800		6,783		(252	)		11,331
Noninterest expense		19,270		5,498		(252	)		24,516
Income before income tax expense		12,150		1,363		0			13,513
Income tax expense		3,927		520		0			4,447
Net Income attributable to noncontrolling interests and Tompkins Financial Corporation		8,223		843		0			9,066
Less: Net income attributable to noncontrolling interests		33		0		0			33
Net Income attributable to Tompkins Financial Corporation	$	8,190	$	843	$	0		$	9,033

Depreciation and amortization	$	1,131	$	70	$	0		$	1,201
Assets		3,137,902		28,423		(4,677	)		3,161,648
Goodwill		23,600		17,989		0			41,589
Other intangibles, net		3,038		1,448		0			4,486
Net loans and leases		1,873,773		0		0			1,873,773
Deposits		2,464,770		0		(4,547	)		2,460,223
Total equity		247,734		20,949		0			268,683

For the six months ended June 30, 2011
(in thousands)	Banking		Financial Services		Intercompany			Consolidated
Interest income	$	68,734	$	140	$	(33	)	$	68,841
Interest expense		13,379		1		(33	)		13,347
Net interest income		55,355		139		0			55,494
Provision for loan and lease losses		2,915		0		0			2,915
Noninterest income		10,572		14,583		(650	)		24,505
Noninterest expense		39,540		11,490		(650	)		50,380
Income before income tax expense		23,472		3,232		0			26,704
Income tax expense		7,319		1,147		0			8,466
Net Income attributable to noncontrolling interests and Tompkins Financial Corporation		16,153		2,085		0			18,238
Less: Net income attributable to noncontrolling interests		65		0		0			65
Net Income attributable to Tompkins Financial Corporation	$	16,088	$	2,085	$	0		$	18,173

Depreciation and amortization	$	2,223	$	152	$	0		$	2,375

For the six months ended June 30, 2010
(in thousands)	Banking		Financial Services		Intercompany			Consolidated
Interest income	$	72,935	$	159	$	(10	)	$	73,084
Interest expense		17,043		1		(10	)		17,034
Net interest income		55,892		158		0			56,050
Provision for loan and lease losses		3,591		0		0			3,591
Noninterest income		9,466		13,665		(480	)		22,651
Noninterest expense		38,411		11,080		(480	)		49,011
Income before income tax expense		23,356		2,743		0			26,099
Income tax expense		7,565		1,020		0			8,585
Net Income attributable to noncontrolling interests and Tompkins Financial Corporation		15,791		1,723		0			17,514
Less: Net income attributable to noncontrolling interests		65		0		0			65
Net Income attributable to Tompkins Financial Corporation	$	15,726	$	1,723	$	0		$	17,449

Depreciation and amortization	$	2,214	$	139	$	0		$	2,353

13. Fair Value

FASB ASC Topic 820, Fair Value Measurements and Disclosures, defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. FASB ASC Topic 820 also establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). Transfers between leveling categories, when determined to be appropriate, are recognized at the end of each reporting period.

The three levels of the fair value hierarchy under FASB ASC Topic 820 are:

Level 1 – Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

Level 2 – Quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability;

Level 3 – Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).

The following table summarizes financial assets and financial liabilities measured at fair value on a recurring basis as of June 30, 2011, segregated by the level of valuation inputs within the fair value hierarchy used to measure fair value.

Recurring Fair Value Measurements
June 30, 2011
	Fair Value		Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
(in thousands)	06/30/2011		(Level 1)		(Level 2)		(Level 3)
Trading securities
Obligations of U.S. Government sponsored entities	$	12,967	$	12,967	$	0	$	0
Mortgage-backed securities – residential U.S. Government sponsored entities		8,135		8,135		0		0
Available-for-sale securities
U.S. Treasury securities		2,106		2,106		0		0
Obligations of U.S. Government sponsored entities		362,571		0		362,571		0
Obligations of U.S. states and political subdivisions		56,253		0		56,253		0
Mortgage-backed securities – residential, issued by:
U.S. Government agencies		143,356		0		143,356		0
U.S. Government sponsored entities		509,748		0		509,748		0
Non-U.S. Government agencies or sponsored entities		7,430		0		7,430		0
U.S. corporate debt securities		5,214		0		5,214		0
Equity securities		1,022		0		0		1,022

Borrowings
Other borrowings		11,656		0		11,656		0

Recurring Fair Value Measurements
December 31, 2010
	Fair Value		Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
(in thousands)	12/31/2010		(Level 1)		(Level 2)		(Level 3)
Trading securities
Obligations of U.S. Government sponsored entities	$	13,139	$	13,139	$	0	$	0
Mortgage-backed securities – residential U.S. Government sponsored entities		9,698		9,698		0		0
Available-for-sale securities
U.S. Treasury securities		2,129		2,129		0		0
Obligations of U.S. Government sponsored entities		407,440		0		407,440		0
Obligations of U.S. states and political subdivisions		63,037		0		63,037		0
Mortgage-backed securities – residential, issued by:
U.S. Government agencies		146,013		0		146,013		0
U.S. Government sponsored entities		405,478		0		405,478		0
Non-U.S. Government agencies or sponsored entities		9,283		0		9,283		0
U.S. corporate debt securities		5,203		0		5,203		0
Equity securities		1,025		0		0		1,025

Borrowings
Other borrowings		11,629		0		11,629		0

There were no significant transfers between Levels 1 and 2 for the three and six months ended June 30, 2011.

There was no significant change in the fair value of the $1.0 million of available-for-sale securities valued using significant unobservable inputs (Level 3), between January 1, 2011 and June 30, 2011.

The Company determines fair value for its trading securities using independently quoted market prices. The Company determines fair value for its available-for-sale securities using an independent bond pricing service for identical assets or very similar securities. The pricing service uses a variety of techniques to determine fair value, including market maker bids, quotes and pricing models. Inputs to the model include recent trades, benchmark interest rates, spreads, and actual and projected cash flows. Based on the inputs used by our independent pricing services, we identify the appropriate level within the fair value hierarchy to report these fair values.

Fair values of borrowings are estimated using Level 2 inputs based upon observable market data. The Company determines fair value for its borrowings using a discounted cash flow technique based upon expected cash flows and current spreads on FHLB advances with the same structure and terms. The Company also receives pricing information from third parties, including the FHLB. The pricing obtained is considered representative of the transfer price if the liabilities were assumed by a third party. The Company’s potential credit risk did not have a material impact on the quoted settlement prices used in measuring the fair value of the FHLB borrowings at June 30, 2011.

Certain assets are measured at fair value on a nonrecurring basis. For the Company, these include loans held for sale, collateral dependent impaired loans, and other real estate owned. During the second quarter of 2011, certain collateral dependent impaired loans and other real estate owned were remeasured and reported at fair value through a specific valuation allowance for loan and lease losses based upon the fair value of the underlying collateral. Collateral values are estimated using Level 2 inputs based upon observable market data.

Non-Recurring Fair Value Measurements
June 30, 2011
	Fair Value		Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
(In thousands)	06/30/2011		(Level 1)		(Level 2)		(Level 3)
Collateral dependent impaired loans	$	19,124	$	0	$	19,124	$	0
Other real estate owned		1,742		0		1,742		0

Non-Recurring Fair Value Measurements
December 31, 2010
	Fair Value		Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
(in thousands)	12/31/2010		(Level 1)		(Level 2)		(Level 3)
Collateral dependent impaired loans	$	17,691	$	0	$	17,691	$	0
Other real estate owned		1,256		0		1,256		0

The following table presents the carrying amounts and estimated fair values of the Company’s financial instruments at June 30, 2011 and December 31, 2010. The carrying amounts shown in the table are included in the Consolidated Statements of Condition under the indicated captions.

The fair value estimates, methods and assumptions set forth below for the Company’s financial instruments, including those financial instruments carried at cost, are made solely to comply with disclosures required by generally accepted accounting principles in the United States and does not always incorporate the exit-price concept of fair value prescribed by ASC Topic 820-10 and should be read in conjunction with the financial statements and notes included in this Report.

Estimated Fair Value of Financial Instruments	06/30/2011				06/30/2010
(in thousands)	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Financial Assets:

Cash and cash equivalents	$	51,479	$	51,479	$	49,665	$	49,665
Securities – trading		21,102		21,102		22,837		22,837
Securities – available-for-sale		1,087,700		1,087,700		1,039,608		1,039,608
Securities – held-to-maturity		29,761		30,439		54,973		56,064
Loans and leases, net 1		1,892,355		1,927,891		1,882,526		1,928,287
FHLB and FRB stock		18,800		18,800		21,985		21,985
Accrued interest receivable		12,118		12,118		11,513		11,513

Financial Liabilities:
Time deposits	$	715,062	$	718,212	$	741,829	$	746,434
Other deposits		1,856,946		1,856,946		1,754,044		1,754,044
Securities sold under agreements to repurchase		178,545		188,347		183,609		193,510
Other borrowings		160,987		173,838		232,564		245,891
Other borrowings (valued at fair value)		11,656		11,656		11,629		11,629
Trust preferred debentures		25,062		25,312		25,060		25,513
Accrued interest payable		1,436		1,436		1,803		1,803

1	Lease receivables, although excluded from the scope of ASC Topic 825, are included in the estimated fair value amounts at their carrying value.

The following methods and assumptions were used in estimating fair value disclosures for financial instruments.

CASH AND CASH EQUIVALENTS: The carrying amounts reported in the Consolidated Statements of Condition for cash, noninterest-bearing deposits, money market funds, and Federal funds sold approximate the fair value of those assets.

SECURITIES: Fair values for U.S. Treasury securities are based on quoted market prices. Fair values for obligations of U.S. government sponsored entities, mortgage-backed securities-residential, obligations of U.S. states and political subdivisions, and U.S. corporate debt securities are based on quoted market prices, where available, as provided by third party pricing vendors. If quoted market prices were not available, fair values are based on quoted market prices of comparable instruments in active markets and/or based upon matrix pricing methodology, which uses comprehensive interest rate tables to determine market price, movement and yield relationships. These securities are reviewed periodically to determine if there are any events or changes in circumstances that would adversely affect their value.

LOANS AND LEASES: The fair values of residential loans are estimated using discounted cash flow analyses, based upon available market benchmarks for rates and prepayment assumptions. The fair values of commercial and consumer loans are estimated using discounted cash flow analyses, based upon interest rates currently offered for loans and leases with similar terms and credit quality. The fair value of loans held for sale are determined based upon contractual prices for loans with similar characteristics.

FHLB AND FRB STOCK: The carrying amount of FHLB and FRB stock approximates fair value. If the stock is redeemed, the Company will receive an amount equal to the par value of the stock. For miscellaneous equity securities, carrying value is cost.

ACCRUED INTEREST RECEIVABLE AND ACCRUED INTEREST PAYABLE: The carrying amount of these short term instruments approximate fair value.

DEPOSITS: The fair values disclosed for noninterest bearing accounts and accounts with no stated maturities are equal to the amount payable on demand at the reporting date. The fair value of time deposits is based upon discounted cash flow analyses using rates offered for FHLB advances, which is the Company’s primary alternative source of funds.

SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE: The carrying amounts of repurchase agreements and other short-term borrowings approximate their fair values. Fair values of long-term borrowings are estimated using a discounted cash flow approach, based on current market rates for similar borrowings. For securities sold under agreements to repurchase where the Company has elected the fair value option, the Company also receives pricing information from third parties, including the FHLB.

OTHER BORROWINGS: The fair values of other borrowings are estimated using discounted cash flow analysis, discounted at the Company’s current incremental borrowing rate for similar borrowing arrangements. For other borrowings where the Company has elected the fair value option, the Company also receives pricing information from third parties, including the FHLB.

TRUST PREFERRED DEBENTURES: The fair value of the trust preferred debentures has been estimated using a discounted cash flow analysis which uses a discount factor of a market spread over current interest rates for similar instruments.

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

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. The Company is a locally-oriented, community-based financial services organization that offers a full array of products and services, including commercial and consumer banking, leasing, trust and investment services, financial planning and wealth management, insurance and brokerage services. Tompkins subsidiaries include: three wholly-owned community banking subsidiaries, Tompkins Trust Company (the “Trust Company”), The Bank of Castile and The Mahopac National Bank; a wholly-owned registered investment advisor, AM&M Financial Services, Inc. (“AM&M”); and a wholly-owned insurance agency subsidiary, Tompkins Insurance Agencies, Inc. (“Tompkins Insurance”). AM&M and the trust division of the Trust Company provide a full suite of investment services under the Tompkins Financial Advisors division, including investment management, trust and estate, financial and tax planning as well as life, disability and long term care insurance services. Unless the context otherwise requires, the term “Company” refers collectively to Tompkins Financial Corporation and its subsidiaries.

The Company’s strategic initiatives include diversification within its markets, growth of its fee-based businesses, and growth internally and through acquisitions of financial institutions, branches and financial services businesses. The Company has identified 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 12 “Segment and Related Information,” in the Notes to Unaudited Condensed Consolidated Financial Statements contained in Part I of this Quarterly Report on Form 10-Q.

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. The Company’s lending function is managed within the guidelines of a comprehensive Board-approved lending policy. Reporting systems are in place to provide management with ongoing information related to loan production, loan quality, and concentrations of credit, loan delinquencies, and nonperforming and potential problem loans.

The Company may sell residential real estate loans in the secondary market based on interest rate considerations. These residential real estate loans are generally sold without recourse and in accordance with standard secondary market loan sale agreements. The Company primarily sells loans to the Federal Home Loan Mortgage Corporation. These residential real estate loans are subject to normal representations and warranties, including representations and warranties related to gross fraud and incompetence. The Company has not had to repurchase any loans as a result of these representations and warranties. The Company reviews the risks in residential real estate lending related to representations and warranties, title issues, and servicing. The Company determined that these risks are immaterial and do not require any reserves on the Company’s statements of condition.

The Company’s principal expenses are interest on deposits, interest on borrowings, and operating and general administrative expenses, as well as provisions for loan and lease losses. Funding sources, other than deposits, include borrowings, securities sold under agreements to repurchase, and cash flow from lending and investing activities.

Financial services consists of providing insurance, financial planning and wealth management, and trust services to individuals and businesses in the Company’s market areas. The Company has expanded its financial services segment over the past ten years through internal growth and acquisitions. In 2006, Tompkins acquired AM&M, a financial planning and wealth management company, to complement its existing trust and investment services businesses. In 2010, the Company unified the branding of its trust and investment services businesses and began marketing these services under the name “Tompkins Financial Advisors”. Tompkins Financial Advisors has office locations at all three of the Company’s subsidiary banks.

The Company provides property and casualty insurance services, employee benefit consulting, and life, long-term care and disability insurance. Tompkins Insurance is headquartered in Batavia, New York, and offers property and casualty insurance to individuals and businesses located primarily in Western New York. Over the past ten years, Tompkins Insurance has acquired smaller insurance agencies in the market areas serviced by the Company’s banking subsidiaries and successfully consolidated them into Tompkins Insurance. Tompkins Insurance offers services to customers of the Company’s banking subsidiaries by sharing offices with The Bank of Castile and 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.

In June 2011, Tompkins Insurance acquired all the outstanding shares of Olver & Associates, Inc, (“Olver”), a property and casualty insurance agency located in Ithaca, New York. The two principal officers and staff continued with Olver after the acquisition. The acquisition-date fair value of the consideration paid was $3.2 million and included $250,000 of cash and 75,188 shares of Tompkins’ common stock. Including the present value of expected contingent payments, the Company recorded the following intangible assets as a result of the acquisition: goodwill ($2.4 million), customer related intangible ($403,000) and a covenant-not-to-compete ($190,000). The values of the customer related intangible and covenant-not-to-compete are being amortized over 15 years and 5 years, respectively. The goodwill is not being amortized but will be evaluated at least annually for impairment. The goodwill is not deductible for taxes. The agreement also provided for the possibility of annual contingent post-closing payments, based upon certain criteria being met. Maximum contingent payments are $100,000 and are payable in Tompkins’ common stock.

Competition for commercial banking and other financial services is strong in the Company’s market areas. 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 highly regulated. As a financial holding company with three community banks, the Company and its subsidiaries are 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 (“SEC”) 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. Weak economic conditions over the past several years have contributed to increases in the Company’s past due loans and leases, nonperforming assets, and net loan and lease losses, as well as decreases in certain fee-based products and services. Although nonperforming loans and leases and criticized and classified loans continue to be higher than historical levels, the Company has seen some early signs of improving economic conditions within the market areas in which it operates, which has contributed to some improvement in its credit quality metrics in recent quarters including some decreases in the level of internally classified assets and nonperforming assets. With the strength of the economic recovery uncertain, there is no assurance that these conditions may not adversely affect the credit quality of the Company’s loans and leases, results of operations, and financial condition going forward. Refer to the section captioned “Financial Condition- Allowance for Loan and Lease Losses and Nonperforming Assets” below for further details on asset quality.

The following discussion is intended to provide an understanding of the consolidated financial condition and results of operations of the Company for the three and six months ended June 30, 2011. 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, 2010, and the Unaudited Condensed Consolidated Financial Statements and notes thereto included in Part I of this Quarterly Report on Form 10-Q.

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, such as the Dodd-Frank Wall Street Reform and Consumer Protection Act and Basel III; 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; financial resources in the amounts, at the times and on the terms required to support the Company’s future businesses, and other factors discussed elsewhere in this Quarterly Report on Form 10-Q and in other reports we file with the SEC, in particular the “Risk Factors” discussed in Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2010. 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 make 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 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, 2010. There have been no significant changes in the Company’s application of critical accounting policies since December 31, 2010. Refer to Note 3 – “Accounting Standards Updates” in the Notes to Unaudited Condensed Consolidated Financial Statements included in Part I of this Quarterly Report on Form 10-Q for a discussion of recent accounting guidelines.

In this Report there are comparisons of the Company's performance to that of a peer group. Unless otherwise stated, this peer group is comprised of the group of 89 domestic bank holding companies with $3 billion to $10 billion in total assets as defined in the Federal Reserve's "Bank Holding Company Performance Report" for March 31, 2011 (most recent report available).

Recent Legislation Impacting the Financial Services Industry

As discussed in the section captioned “Supervision and Regulation” included in Item 1. Business of the Company’s 2010 Report on Form 10-K, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) was signed into law on July 21, 2010. The Dodd-Frank Act contains numerous and wide-ranging reforms to the structure and operation of the U.S. financial system. The Company is currently evaluating the potential impact of the Dodd-Frank Act on its business, financial condition and results of operations. Management expects that some provisions of the Dodd-Frank Act may have adverse effects on the Company, such as the cost of complying with numerous new regulations and disclosure and reporting requirements mandated by the Act. Portions of the Dodd-Frank Act become effective at different times, and many of the Act’s provisions consist of general statements directing various regulators to issue more detailed rules. Consequently, the full scope of the Dodd-Frank Act’s impact on the financial system in general and the Company in particular cannot be predicted at this time.

OVERVIEW

Net income for the three months ended June 30, 2011 totaled $9.4 million, an increase of 4.1% compared to $9.0 million reported for the three months ended June 30, 2010. Net income totaled $18.2 million for the first six months of 2011, compared to $17.4 million for the same period in 2010. Diluted earnings per share for the three and six months ended June 30, 2011 were $0.85 and $1.65, respectively, compared to $0.83 and $1.61 reported for the same periods in 2010. Improvement in fee-based businesses as well as lower provision expense contributed to the favorable performance in 2011.

Return on average assets (“ROA”) for the quarter ended June 30, 2011 was 1.15% compared to 1.14% for the quarter ended June 30, 2010. Return on average shareholders’ equity (“ROE”) for the second quarter of 2011 was 13.08%, compared to 13.92% for the same period in 2010. Tompkins’ ROA and ROE continue to compare favorably to peer ratios, ranking in the 81st percentile for ROA and the 89th percentile for ROE.

Total revenues, consisting of net interest income and noninterest income, were $40.0 million in the second quarter of 2011 and $80.0 million for the first six months of 2011, up 1.3% and 1.7% over the comparable periods in 2010. Noninterest income for the three and six months ended June 30, 2011 was up 6.0% and 8.2%, respectively, while net interest income was relatively flat when compared to the same periods in 2010.

The provision for loan and lease losses totaled $1.0 million and $2.9 million, respectively, in the second quarter and year to date periods of 2011, down 28.6% and 18.8% when compared to the $1.4 million and $3.6 million reported for the same periods in 2010.

Noninterest expenses for the three and six months ended June 30, 2011 of $25.2 million and $50.4 million, were up 2.6% and 2.8%, respectively, when compared to the three and six months ended June 30, 2010. Salary and employee benefit expenses were the main reason for the increase over both the three and six month periods in 2010.

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 $8.4 million for the second quarter of 2011, up $225,000 or 2.7% from net income of $8.2 million for the same period in 2010. For the current year to date period, net income was $16.1 million, an increase of $362,000 or 2.3% over the same period last year. The increases in net income in the quarter and year to date periods were the result of a lower provision for loan and lease losses, higher noninterest income due to an increase in card services income, mark-to-market adjustments on trading liabilities held at fair value and an increase in non-core investment income. These factors were partially offset by increases in noninterest expense led by higher salaries and employee benefits costs.

In this report there are comparisons of the Company's performance to that of a peer group. Unless otherwise stated, this peer group is comprised of the group of 89 domestic bank holding companies with $3 billion to $10 billion in total assets as defined in the Federal Reserve's "Bank Holding Company Performance Report" for March 31, 2011 (most recent report available).

Net interest income for the three and six months ended June 30, 2011, was down $143,000 or 0.5% and $537,000 or 1.0%, respectively driven mainly by declines in average earning assets yields which could not be fully offset by the decrease in funding costs, and increase in average earning assets.

The provision for loan and lease losses totaled $1.0 million and $2.9 million for the three and six months ended June 30, 2011, respectively compared to $1.4 million and $3.6 million for the same period in 2010 reflecting an improvement in credit quality among the Company’s borrowers. The decline in the provision for loan and lease losses on a QTD and YTD basis is primarily due to the decline in non-accruing loans to $35.5 million at June 30, 2011 as compared to $41.5 million at December 31, 2010. Further, loans classified as substandard and doubtful have also declined to $82.5 million at June 30, 2011 as compared to $91.6 million at December 31, 2010, a decline of $9.1 million or 9.9%.

Noninterest income for the three and six months ending June 30, 2011, was up $215,000 or 4.5% and $1.1 million or 11.7%, respectively, over the same period in 2010. Contributing to the increase in 2011 over the prior year were net mark-to-market losses on liabilities held at fair value, which were $202,000 and $27,000 for the second quarter and current year to date periods of 2011, respectively, compared to net mark-to-market losses of $490,000 and $618,000 for the same periods in 2010, and higher card services income. Card service income was up $202,000 and $473,000 in the current quarter and year to date periods compared to the same periods last year, due to an adjustment for higher transaction volume and lower than anticipated redemption rates on a debit card rewards program benefits for cardholders. In addition, higher income from miscellaneous investments contributed to the higher noninterest income figures in the current quarter and year to date periods.

Noninterest expenses for the three months ended June 30, 2011, were up $352,000 or 1.8% over the same period in 2010. Year to date noninterest expenses were up $1.1 million versus the prior year. The increase was a result of increases in salaries and other benefit related accruals, reflecting mainly annual merit increases, and healthcare insurance. FDIC expense declined $326,000 in the second quarter and $187,000 year to date compared to the previous year due to the enactment of lower assessment rates. This reduction was partially offset by a increase in other real estate owned related expenses of $266,000 and $405,000 in the second quarter and year to date periods, respectively, over the same periods in 2010 due to a rise in foreclosures.

Financial Services Segment

The financial services segment had net income of $985,000 in the second quarter of 2011, an increase of $142,000 or 16.8% from net income of $843,000 in the same quarter of the prior year. Year to date net income rose $362,000 or 21.0% over the prior year. Noninterest income for the three months ended June 30, 2011, was up $538,000 or 7.9% over the same period in 2010. Year to date non-interest income increased $918,000 or 6.7% over the prior year. The increase in noninterest income in the second quarter and year to date periods were mainly a result of higher investment services fees and insurance commissions/fees. Investment services fees are largely based on the market value of assets within each account. Increased stock market indices to date in 2011 compared to the same period in 2010, account retention and new account generation contributed to an increase in the fair value of assets under management and related investment fees. Noninterest expenses for the three months and six months ended June 30, 2011, were up $366,000 or 6.7% and $410,000 or 3.7% compared to the same period in the prior year. The increases were mainly the result of increases in salary and wages, reflecting annual merit increases, and other employee benefit costs.

Average Consolidated Balance Sheet and Net Interest Analysis
	Quarter Ended								Year to Date Period Ended								Year to Date Period Ended
	June 30, 2011								June 30, 2011								June 30, 2010
	Average								Average								Average
	Balance					Average			Balance					Average			Balance					Average
(Dollar amounts in thousands)	(QTD)		Interest			Yield/Rate			(YTD)		Interest			Yield/Rate			(YTD)		Interest			Yield/Rate
ASSETS
Interest-earning assets
Interest-bearing balances due from banks	$	10,352	$	4			0.15	%	$	13,235	$	9			0.14	%	$	36,979	$	22			0.12	%
Money market funds		100		-			0.00	%		100		-			0.00	%		100		-			0.00	%
Securities (1)
U.S. Government securities		963,145		7,227			3.01	%		945,956		14,215			3.03	%		835,570		16,248			3.92	%
Trading securities		21,569		220			4.09	%		22,053		455			4.16	%		30,218		588			3.92	%
State and municipal (2)		103,066		1,364			5.31	%		107,672		2,811			5.26	%		105,181		3,109			5.96	%
Other securities (2)		14,348		168			4.70	%		14,790		348			4.74	%		18,171		442			4.91	%
Total securities		1,102,128		8,979			3.27	%		1,090,471		17,829			3.30	%		989,140		20,387			4.16	%
Federal Funds Sold		4,111		1			0.10	%		6,426		5			0.16	%		11,256		9			0.16	%
FHLBNY and FRB stock		18,092		218			4.83	%		18,505		509			5.55	%		19,514		501			5.18	%
Loans, net of unearned income (3)
Real estate		1,384,792		18,550			5.37	%		1,376,735		36,978			5.42	%		1,332,798		37,856			5.73	%
Commercial loans (2)		451,648		6,154			5.47	%		454,155		12,176			5.41	%		465,834		12,544			5.43	%
Consumer loans		68,382		1,189			6.97	%		70,446		2,443			6.99	%		82,809		2,862			6.97	%
Direct lease financing		7,889		115			5.85	%		8,318		246			5.96	%		11,404		342			6.05	%
Total loans, net of unearned income		1,912,711		26,008			5.45	%		1,909,654		51,843			5.47	%		1,892,845		53,604			5.71	%
Total interest-earning assets		3,047,494		35,210			4.63	%		3,038,391		70,195			4.66	%		2,949,834		74,523			5.09	%

Other assets		224,401								223,893								227,459

Total assets		3,271,895								3,262,284								3,177,293

LIABILITIES & EQUITY
Deposits
Interest-bearing deposits
Interest bearing checking, savings, & money market		1,355,790		1,284			0.38	%		1,332,585		2,455			0.37	%		1,229,835		3,395			0.56	%
Time deposits > $100,000		323,435		868			1.08	%		316,628		1,717			1.09	%		338,998		2,324			1.38	%
Time deposits < $100,000		402,329		1,280			1.28	%		413,119		2,714			1.32	%		430,141		3,657			1.71	%
Brokered time deposits < $100,000		699		1			0.57	%		3,372		21			1.26	%		32,326		277			1.73	%
Total interest-bearing deposits		2,082,253		3,433			0.66	%		2,065,704		6,907			0.67	%		2,031,300		9,653			0.96	%
Federal funds purchased & securities sold under agreements
to repurchase		171,341		1,248			2.92	%		178,359		2,540			2.87	%		182,502		2,733			3.02	%
Other borrowings		153,900		1,533			4.00	%		162,731		3,108			3.85	%		194,784		3,845			3.98	%
Trust preferred debentures		25,062		388			6.21	%		25,061		792			6.37	%		25,057		803			6.46	%
Total interest-bearing liabilities		2,432,556		6,602			1.09	%		2,431,855		13,347			1.11	%		2,433,643		17,034			1.41	%

Noninterest bearing deposits		514,977								511,345								448,232
Accrued expenses and other liabilities		36,021								36,242								40,498
Total liabilities		2,983,554								2,979,442								2,922,373

Tompkins Financial Corporation Shareholders’ equity		286,839								281,357								253,436
Noncontrolling interest		1,502								1,485								1,484
Total equity		288,341								282,842								254,920

Total liabilities and equity	$	3,271,895							$	3,262,284							$	3,177,293
Interest rate spread							3.54	%							3.55	%							3.68	%
Net interest income/margin on earning assets				28,608			3.77	%				56,848			3.77	%				57,489			3.93	%

Tax Equivalent Adjustment				(656	)							(1,354	)							(1,439	)

Net interest income per consolidated financial statements			$	27,952							$	55,494							$	56,050

(1)	Average balances and yields on available-for-sale securities are based on historical 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 taxable-equivalent basis.

(3)

Nonaccrual loans are included in the average asset totals presented above. Payments received on nonaccrual loans have been recognized as disclosed in Note 1 of the Company’s condensed consolidated financial statements included in Part I of the Company's annual report on Form 10-K for the fiscal year ended December 31, 2010.

Net Interest Income

Net interest income is the Company’s largest source of revenue, representing 69.9% and 69.4% of total revenues for the three and six months ended June 30, 2011, compared to 71.3% and 71.2%, respectively, from the same periods in 2010. The decrease reflects the growth in noninterest income sources and the slight decrease in net interest income. Net interest income is dependent on the volume and composition of interest earning assets and interest-bearing liabilities and the level of market interest rates. The Company’s net interest income over the past several years has benefitted from steady growth in average earning assets, as well as the low interest rate environment. With deposit rates currently at low levels, the downward pricing of these liabilities has slowed, while interest earning assets continue to reprice downward at a steady rate. This has contributed to a decrease in net interest margin for the three and six months ended June 30, 2011, compared to the same periods in 2010. The taxable equivalent net interest margin of 3.77% for the three and six month periods in 2011, is below the same periods in 2010, of 3.91% and 3.93%, respectively. The decrease in the net interest margin was also partly due to the growth in interest earning assets over the prior year being concentrated in lower yielding securities rather than higher yielding loans.

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 three and six months ended June 30, 2011 were $28.6 million and $56.8 million, respectively, down 0.7% and 1.1% when compared to the same periods in 2010.

Taxable-equivalent interest income for the second quarter of 2011 was $35.2 million, down 5.3% when compared to the second quarter of 2010. Taxable-equivalent interest income for the six months ending June 30, 2011 was $70.2 million, down $4.3 million or 5.8% compared to the first six months of 2010. The decrease in taxable-equivalent interest income was mainly a result of the decrease in the yield on average earnings assets. Average earnings assets were up 3.2% and 3.0% for the three and six months periods of 2011 compared to the same periods in 2010; however, the yield on average earning assets decreased by 42 basis points and 43 basis points, respectively, over the same periods. The yield on average earning assets was impacted by the low rate environment as well as growth being concentrated in lower yielding securities as a result of soft loan demand. Average securities balances for the second quarter of 2011 were up $106.7 million or 10.7% over average balances in the second quarter of 2010, while average yields were down 78 basis points. For the six months ended June 30, 2011 average securities balances increased $101.3 million or 10.2% from the same period in 2010, while yields declined 86 basis points.

Interest expense for the second quarter of 2011 was down $1.7 million or 20.9% compared to the second quarter of 2010, reflecting lower average rates paid on deposits and borrowings. The average rate paid on interest bearing deposits during the second quarter of 2011 of 0.66% was 26 basis points lower than the average rate paid in the second quarter of 2010. Interest expense for the six months ending June 30, 2011 was $13.3 million, down $3.7 million or 21.6% compared to 2010. The rates paid were lower across all deposit categories. The lower cost of deposits was partially offset by growth in interest-bearing deposits. Average interest-bearing deposit balances in the second quarter of 2011 increased by $50.8 million or 2.5% compared to the same period in 2010. For the six months ending June 30, 2011, average interest-bearing deposits increased $34.4 million or 1.7% compared to the previous year. Total funding costs also benefitted from the growth in average noninterest bearing deposit balances. For the three and six months of 2011, average noninterest bearing deposits of $515.0 million and $511.3 million were up 12.9% and 14.1%, respectively, over the same periods in 2010. Average other borrowings for the second quarter were down $36.5 million or 19.2% compared to prior year, and $32.1 million or 16.5% for the six months ending June 30, 2011.

Provision for Loan and Lease Losses

The provision for loan and lease losses represents management’s estimate of the amount necessary to maintain the allowance for loan and lease losses at an adequate level. The provision for loan and lease losses was $1.0 million for the second quarter of 2011 and $2.9 million for the six months ending June 30, 2011, compared to $1.4 million and $3.6 million for the respective periods in 2010. The provision for loan and lease losses in 2010 was higher than historical levels as the Company experienced increased levels of nonperforming assets, classified loans, and net charge-offs, due to, among other things, higher unemployment levels and the recessionary economy. The Company has seen some improvement in credit quality metrics over the past few quarters, including a decrease in nonperforming loans and leases and internally criticized and classified loans. The allowance for loan and lease losses as a percentage of period end loans and leases was 1.48% at June 30, 2011, compared to 1.40% at June 30, 2010. The section captioned “Financial Condition-Allowance for Loan and Lease Losses” below has further details on the allowance for loan and lease losses.

Noninterest Income

Noninterest income totaled $12.0 million and $24.5 million for the three and six months ended June 30, 2011, compared with $11.3 million and $22.7 million for the same periods in 2010. Noninterest income represented 30.1% and 30.6% of total revenues for the three and six months ended June 30, 2011, compared to 28.7% and 28.8% for the same periods in 2010. The increases over prior periods were mainly due to growth in noninterest income sources coupled with slightly lower net interest income.

Investment services income was $3.8 million in second quarter of 2011, an increase of 6.1% from $3.6 million in the second quarter of 2010. Investment services income totaled $7.7 million for the first six months of 2011, up 4.4% over the same period in 2010. Investment services income includes trust services, financial planning, wealth management services, and brokerage related services. With fees largely based on the market value and the mix of assets managed, the general direction of the stock market can have a considerable impact on fee income. The fair value of assets managed by, or in custody of, Tompkins was $2.5 billion at June 30, 2011, which was in line with June 30, 2010. These figures include $757.7 million and $596.1 million, respectively, of Company-owned securities where Tompkins Financial Advisors is custodian. The increase in fair value of assets reflects successful business development initiatives resulting in customer retention as well as generally higher stock market indices in 2011 when compared to the same period in 2010.

Insurance commissions and fees for the three and six months ended June 30, 2011, increased by $268,000 or 8.4% and $476,000 or 7.5%, respectively, as compared to the same periods in 2010. Health and benefit related insurance products continue to be the main source of growth year-to-date for 2011, increasing by $113,000 or 24.7% over the prior year. Revenues for commercial insurance lines were $90,000 or 3.9%, for the six months ended June 30, 2011, ahead of the prior year, while revenues for personal insurance lines were $52,000 or 2.2%, for the six months ended June 30, 2011, ahead of the prior year.

Service charges on deposit accounts were $2.1 million in the second quarter of 2011, down 13.3% compared to $2.4 million in the second quarter of 2010, and down $396,000 or 8.8% for the six months ended June 30, 2011 compared to prior year. The largest component of this category is overdraft fees, which is largely driven by customer activity. Overdraft fees were down in the three and six months ended June 30, 2011, mainly due to regulatory changes which became effective in the third quarter of 2010. The Federal Reserve Board rule prohibits financial institutions from charging consumer fees for paying overdrafts on automated teller machines and one-time debit transactions, unless the consumer consents, or opts in, to the overdraft service for these types of transactions.

Card services income for the three and six months ended June 30, 2011 was up $202,000 or 18.9% and $473,000 or 23.2%, respectively, over the same periods in 2010. The increase was mainly in debit card income and reflects a higher transaction volume, increase in the number of cardholders, and an adjustment to an accrual rate related to a points reward program offered to debit card customers. As discussed in the section captioned “Supervision and Regulation” included in Item 1. Business of the Company’s 2010 Report on form 10-K, the Dodd-Frank Act requires the Federal Reserve Board to establish rules regarding interchange fees charged in electronic debit card transaction by payment users. Currently these rules only apply to banks with total assets exceeding $10.0 billion, which exempts the Company. However, the long term impact of any new regulations is uncertain.

Net mark-to-market losses on securities and borrowings held at fair value totaled $37,000 in the second quarter of 2011, compared to net mark-to-market losses of $199,000 in the second quarter of 2010. For the six month period ending June 30, 2011 net mark-to-market gains totaled $88,000 compared to net market-to-market losses of $237,000 for the first six months of 2010. Mark-to-market losses or gains relate to the change in the fair value of securities and borrowings where the Company has elected the fair value option, these unrealized amounts are primarily impacted by changes in interest rates.

Other income of $1.4 million in the second quarter of 2011 was up 17.8% from the second quarter of 2010. For the six months ended June 30, 2011 other income of $3.2 million was up 29.5% compared to prior year. The primary components of other income are other service charges, increases in cash surrender value of corporate owned life insurance (”COLI”), gains on the sales of residential mortgage loans, and income from miscellaneous equity investments, including the Company’s investment in a Small Business Investment Company (“SBIC”).

Other service charge income, included in other income on the consolidated statements of income, of $544,000 in the second quarter of 2011 was up $55,000 or 11.3% from the same period in 2010. Other service charges for the six months ending June 30, 2011 were up $23,000 or 2.1% compared to the same period in 2010.

Net gains on sale of loans, included in other income on the consolidated statements of income, of $136,000 in the second quarter of 2011 were down by $11,000 or 7.5% compared to the second quarter of 2010. Net gains on sale of loans totaled $300,000 in the first six months of 2011, compared to $339,000 in the same period 2010. To manage interest rate risk

exposures, the Company sells certain fixed rate loan originations that have rates below or maturities greater than the standards set by the Company’s Asset/Liability Committee for loans held in the portfolio.

Other income in the three and six months ended June 30, 2011 included $202,000 and $697,000 related to an investment in a SBIC. The six month period ending June 30, 2011 included a $504,000 gain recognized and distributed by SBIC. The SBIC periodically recognizes gains related to investments held in its portfolio and distributes these gains to its investors. The Company believes that, as of June 30, 2011, there were no impairments with respect to its investment in the SBIC.

Noninterest Expense

Noninterest expense for the second quarter of 2011 was $25.2 million, up $647,000 or 2.6% compared to the same period prior year. For the six months ending June 30, noninterest expenses totaled $50.4 million in 2011 and $49.0 million in 2010, an increase of 2.8%.

Personnel-related expense increased by $757,000 or 5.4% in the second quarter of 2011 over the same period in 2010. For the first six months of 2011, personnel-related expenses totaled $29.7 million, an increase of 4.8% over the same period prior year. For the three and six months ended June 30, 2011, salaries and wages were up $542,000 or 5.1%, and $1.0 million or 4.9%, respectively, over the same periods in 2010, mainly reflecting annual merit increases. Year-to-date June 30, 2011 average full time equivalents (“FTEs”) of 723 were in line with year-to-date June 30, 2010 average FTEs of 725. Pension and other employee related benefits were up $215,000 or 6.3% in the second quarter of 2011 compared to the second quarter of 2010, and up $334,000 or 4.5% for the six months ended June 30, 2011 over the same period in 2010. Expenses related to health and dental insurance were up $81,000 or 8.0% and $257,000 or 12.8% for the three and six months ended June 30, 2011 compared to the same periods in 2010.

FDIC deposit insurance expense decreased by $326,000 and $187,000 for the three and six months ended June 30, 2011, over the same prior year periods as a result of changes to the FDIC assessment method that took effect in the second quarter of 2011, and will continue through the remainder of 2011.

Other operating expenses for the second quarter 2011 increased by $459,000 or 14.5% compared to prior year, and $819,000 or 13.6% for the year-to-date period ending June 30, 2011. Contributing to the increase in the second quarter 2011 over the second quarter 2010 were the following: Legal expense (up $48,000), other loan and lease related fees (up $74,000) and expenses related to other real estate owned (up $290,000). For the six months ended June 30, 2011 the main contributors were as follows: software and licenses (up $46,000), and other real estate owned (up $389,000).

Income Tax Expense

The provision for income taxes provides for Federal and New York State income taxes. The provision for the second quarter of 2011 was $4.4 million, and was in line with same period prior year. For the six month period ending June 30, the tax provision totaled $8.5 million in 2011 and $8.6 million in 2010. The Company’s effective tax rate for the second quarter of 2011 was 31.6% compared to 32.9% for the second quarter of 2010. For the six month period ending June 30, the Company’s effective tax rate was 31.7% in 2011 and 32.9% in 2010. The decrease in the effective tax rate in 2011 compared to 2010 was primarily a result of investments in low income housing tax credits.

FINANCIAL CONDITION

Total assets were $3.3 billion at June 30, 2011, up $27.3 million or 0.8% over December 31, 2010, and up $125.9 million or 4.0% over June 30, 2010. Total deposits were up $76.1 million or 4.7% over year-end with the majority of growth centered in checking, savings and money market deposits. Deposit growth was used to reduce other borrowings, mainly short-term borrowings with the FHLB. The growth over the prior year was primarily in securities, which were up $116.0 million or 113%. Loans were up $20.4 million or 1.1% at June 30, 2011 compared with June 30, 2010. This growth was partially offset by cash and cash equivalents, which declined $13.1 million or 20.3% from June 30, 2011 to June 30, 2010.

Securities

As of June 30, 2011, total securities were $1.1 billion or 34.0% of total assets, compared to $1.1 billion or 34.3% of total assets at year-end 2010, and $1.0 billion or 32.4% at June 30, 2010. The following table details the composition of securities available-for-sale and securities held-to-maturity.


Available-for-Sale Securities	06/30/2011				12/31/2010
	Amortized Cost1		Fair Value		Amortized Cost1		Fair Value
(in thousands)
U.S. Treasury securities	$	2,032	$	2,106	$	2,043	$	2,129
Obligations of U.S. Government sponsored entities		351,158		362,571		402,057		407,440
Obligations of U.S. states and political subdivisions		53,874		56,253		60,707		63,037
Mortgage-backed securities – residential
U.S. Government agencies		137,705		143,356		143,319		146,013
U.S. Government sponsored entities		491,433		509,748		393,331		405,478
Non-U.S. Government agencies or sponsored entities		7,873		7,430		9,636		9,283
U.S. corporate debt securities		5,021		5,214		5,024		5,203
Total debt securities		1,049,096		1,086,678		1,016,117		1,038,583
Equity securities		1,022		1,022		1,025		1,025
Total available-for-sale securities	$	1,050,118	$	1,087,700	$	1,017,142	$	1,039,608
1 Net of other-than-temporary impairment losses recognized in earnings

Held-to-Maturity Securities
	06/30/2011				12/31/2010
(in thousands)	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Obligations of U.S. states and political subdivisions	$	29,761	$	30,439	$	54,973	$	56,064
Total held-to-maturity debt securities	$	29,761	$	30,439	$	54,973	$	56,064

The Company has no investments in preferred stock of U.S. government sponsored entities and no investments in pools of Trust Preferred securities. Quarterly, the Company evaluates all investment securities with a fair value less than amortized cost to identify any other-than-temporary impairment as defined under generally accepted accounting principles.

As of June 30, 2011, the Company held five mortgage backed securities, with a fair value of $7.4 million, that were not issued by U.S. Government agencies or U.S. Government sponsored entities. In 2009, the Company determined that three of these non-U.S. Government mortgage backed securities were other-than-temporarily impaired based on an analysis of the above factors for these three securities. As a result, the Company recorded other-than-temporary impairment charges of $2.0 million in 2009 on these investments. The credit loss component of $146,000 was recorded as other-than-temporary impairment losses in the consolidated statement of income, while the remaining non-credit portion of the impairment loss was recognized in other comprehensive income (loss) in the consolidated statements of condition and changes in shareholders’ equity. In 2010 the Company determined that an additional credit loss component of other-than-temporary impairment charge of $34,000 related to the three non-U.S. Government mortgage backed securities was necessary. The Company’s review of these securities as of June 30, 2011 concluded that no additional impairment charges were necessary. As of June 30, 2011, the carrying value of these three securities exceeded their fair value by $449,000. A continuation or worsening of current economic conditions may result in an additional credit loss component of other-than-temporary impairment losses related to these investments.

The Company maintains a trading portfolio with a fair value of $21.1 million as of June 30, 2011, compared to $22.8 million at December 31, 2010. The decrease in the trading portfolio reflects maturities or payments during 2011. For the six months ended June 30, 2011, net mark-to-market gains related to the securities trading portfolio were $115,000, compared to net mark-to-market gains of $381,000 for the same period in 2010.

Loans and Leases
Loans and Leases at June 30, 2011 and December 31, 2010 were as follows:
(in thousands)	06/30/2011			12/31/2010
Commercial and industrial
Agriculture	$	54,700		$	65,918
Commercial and industrial other		393,669			409,432
Subtotal commercial and industrial		448,369			475,350
Commercial real estate
Construction		45,617			58,519
Agriculture		49,159			48,485
Commercial real estate other		666,523			619,458
Subtotal commercial real estate		761,299			726,462
Residential real estate
Home equity		160,437			164,765
Mortgages		476,747			462,032
Subtotal residential real estate		637,184			626,797
Consumer and other
Indirect		36,334			41,668
Consumer and other		31,375			31,757
Subtotal consumer and other		67,709			73,425
Leases		7,850			9,949
Total loans and leases		1,922,411			1,911,983
Less: unearned income and deferred costs and fees		(1,695	)		(1,625	)
Total loans and leases, net of unearned income and deferred costs and fees	$	1,920,716		$	1,910,358

Total loans and leases of $1.92 billion, at June 30, 2011, are up $10.4 million compared to year-end 2010 balances, with growth in commercial real estate loans mainly offset by lower balances in commercial loans and consumer loans. As of June 30, 2011 total loans and leases represented 58.4% of total assets compared to 58.6% of total assets at December 31, 2010. In general, weak economic conditions continue to soften the demand for some lending products.

Residential real estate loans, including home equity loans, of $637.2 million at June 30, 2011 increased by $10.4 million or 1.7% from $626.8 million at year-end 2010, and comprised 33.2% of total loans and leases at June 30, 2011.

The Company has not originated any hybrid loans, such as payment option ARMs. The Company underwrites residential real estate loans in accordance with secondary market standards in effect at the time of origination, including loan-to-value (“LTV”) and documentation requirements. The Company does not underwrite low or reduced documentation loans other than those that meet secondary market standards for low or reduced documentation loans. In those instances, W-2’s and paystubs are used instead of sending Verification of Employment forms to employers to verify income and bank deposit statements are used instead of Verification of Deposit forms mailed to financial institutions to verify deposit balances.

The Company may sell residential real estate loans in the secondary market based on interest rate considerations. Loans are generally sold to the Federal Home Loan Mortgage Corporation (“FHLMC”) or the State of New York Mortgage Agency (“SONYMA”). These residential real estate loans are generally sold without recourse in accordance with standard secondary

market loan sale agreements. These residential real estate loan sales are subject to customary representations and warranties made by the Company, including representations and warranties related to gross incompetence and fraud. The Company has not had to repurchase any loans as a result of these general representations and warranties. While in the past in rare circumstances the Company agreed to sell residential real estate loans with recourse, the Company has not done so in the past several years and the amount of such loans is insignificant. The Company has never had to repurchase a loan sold with recourse.

During the first six months of 2011 and 2010, the Company sold residential mortgage loans totaling $15.6 million and $18.6 million, respectively, and realized gains on these sales of $300,000 and $339,000, respectively. These residential real estate loans were sold without recourse in accordance with standard secondary market loan sale agreement. When residential mortgage loans are sold, the Company typically retains all servicing rights, which provides the Company with a source of fee income. Mortgage servicing rights, at amortized basis, totaled $1.5 million at both June 30, 2011 and December 31, 2010.

Commercial real estate loans increased by $34.8 million, or 4.8%, from $726.5 million at year-end 2010, to $761.3 million or 39.6% of total loans at June 30, 2011. Commercial and industrial loans totaled $448.4 million at June 30, 2011, which is a 5.7% decrease from commercial loans of $475.4 million at December 31, 2010. Demand for commercial and commercial real estate loans continues to be soft in 2011, reflecting weak economic conditions. As of June 30, 2011, agriculturally-related loans totaled $103.9 million or 5.4% of total loans and leases. Agriculturally-related loans include loans to dairy farms and cash and vegetable crop farms. Agriculturally-related loans are primarily made based on identified cash flows of the borrower with consideration given to underlying collateral, personal guarantees, and government related guarantees. Agriculturally-related loans are generally secured by the assets or property being financed or other business assets such as accounts receivable, livestock, equipment or commodities/crops.

The consumer loan portfolio includes personal installment loans, indirect automobile financing, and overdraft lines of credit. Consumer and other loans were $67.7 million at June 30, 2011, down from $73.4 million at December 31, 2010. The decrease is mainly in indirect automobile loans and reflects competition as well as softened demand.

The lease portfolio decreased by 21.1% to $7.9 million at June 30, 2011 from $9.9 million at December 31, 2010. The lease portfolio has traditionally consisted of leases on vehicles for consumers and small businesses. More aggressive competition for automobile financing has led to a decline in the consumer lease portfolio over the past several years. Management continues to review leasing opportunities, primarily commercial leasing and municipal leasing. As of June 30, 2011, commercial leases and municipal leases represented 98.7% of total leases, while consumer leases made up the remaining 1.3%. As of December 31, 2010, commercial leases and municipal leases represented 96.8% of total leases, while consumer leases made up the remaining 3.2%.

The Company’s loan and lease customers are located primarily in the New York communities served by its three subsidiary banks. Although operating in numerous communities in New York State, the Company is still dependent on the general economic conditions of New York. Other than geographic and general economic risks, management is not aware of any material concentrations of credit risk to any industry or individual borrower.

The Allowance for Loan and Lease Losses

include: the customer’s ability to repay based upon the customer’s expected future cash flow, operating results, and financial condition; value of the underlying collateral, if any; and the economic environment and industry in which the customer operates. Special mention loans have potential weaknesses that if left uncorrected may result in deterioration of the repayment prospects and a downgrade to a more severe risk rating. A substandard loan credit has a well-defined weakness which makes payment default or principal exposure likely, but not yet certain. There is a possibility that the Company will sustain some loss if the deficiencies are not corrected. A doubtful loan has a high possibility of loss, but the extent of the loss is difficult to quantify because of certain important and reasonably specific pending factors.

At least quarterly, management reviews all commercial and commercial real estate loans and leases and agriculturally related loans with an outstanding principal balance of over $500,000 that are internally risk rated as special mention or worse, giving consideration to payment history, debt service payment capacity, collateral support, strength of guarantors, local market trends, industry trends, and other factors relevant to the particular borrowing relationship. Through this process, management identifies impaired loans. For loans and leases considered impaired, estimated exposure amounts are based upon collateral values or present value of expected future cash flows discounted at the original effective rate of each loan. For commercial loans, commercial mortgage loans, and agricultural 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 net loss experience and current charge-off trends, past due status, and management’s judgment of the effects of current economic conditions on portfolio performance.

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. Based on its evaluation of the allowance as of June 30, 2011, management considers the allowance to be appropriate. Under adversely different conditions or assumptions, the Company would need to increase the allowance.

The table below provides, as of the dates indicated, an allocation of the allowance for probable and inherent loan losses by type. The 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 allowance to each category does not restrict the use of the allowance to absorb losses in any category.

(in thousands)	06/30/2011		12/31/2010		06/30/2010

Commercial and industrial	$	7,840	$	7,824	$	7,277
Commercial real estate		14,444		14,445		13,459
Residential real estate		4,425		3,526		3,507
Consumer and other		1,605		1,976		2,215
Leases		47		61		72
Total	$	28,361	$	27,832	$	26,530

The allowance has increased annually since 2007, reflecting higher allocations driven by deterioration in asset quality metrics, including: higher levels of net charge-offs, internally-classified commercial and commercial real estate loans, and nonperforming loans and leases; weak economic conditions; soft real estate markets; and growth in the loan portfolio. The increase in the Company’s net charge-offs during 2010, 2009, and 2008 led to higher historical loss factors in the allowance model. These historical loss factors were also adjusted upwards to reflect weak and uncertain economic conditions, including pressure on real estate values, and high unemployment. The allocations assigned to the internally-classified loans were also up in 2010, a result of an increase in the volume of loans internally-classified and higher historical loss factors.

As of June 30, 2011, the overall allowance is up slightly over year-end 2010, driven by higher allocations for residential loans, reflecting concern over continued high unemployment and soft real estate values in some of the Company’s market areas. The decrease in the allocation for consumer loans is mainly a result of a decrease in the outstanding balance for this portfolio.

Activity in the Company’s allowance for loan and lease losses during the first six months of 2011 and 2010, and for the twelve months ended December 31, 2010 is illustrated in the table below.

Analysis of the Allowance for Loan and Lease Losses
(in thousands)	06/30/2011			12/31/2010			06/30/2010
Average loans outstanding during year	$	1,914,951		$	1,897,983		$	1,892,845
Balance of allowance at beginning of year		27,832			24,350			24,350

LOANS CHARGED-OFF:
Commercial and industrial		1,257			3,265			989
Commercial real estate		369			1,167			322
Residential real estate		1,195			791			362
Consumer and other		268			912			534
Total loans charged-off	$	3,089		$	6,135		$	2,207

RECOVERIES OF LOANS PREVIOUSLY CHARGED-OFF:
Commercial and industrial		393			464			377
Commercial real estate		105			225			199
Residential real estate		32			85			33
Consumer and other		173			336			187
Total loans recovered	$	703		$	1,110		$	796
Net loans charged-off		2,386			5,025			1,411
Additions to allowance charged to operations		2,915			8,507			3,591
Balance of allowance at end of year	$	28,361		$	27,832		$	26,530
Annualized net charge-offs to average total loans and leases		0.25	%		0.26	%		0.15	%

As of June 30, 2011 the allowance was $28.4 million or 1.48% of total loans and leases outstanding, compared with $27.8 million or 1.46% at December 31, 2010 and $26.5 million or 1.40% at June 30, 2010. In general, the dollar amount of the allowance has increased since 2007, reflective of weak economic conditions that began in the latter part of 2008. Weak economic conditions contributed to increases in internally classified assets, nonperforming assets and net charge-offs in 2009 and 2010 and contributed to provisions for loan and lease losses in 2009 and 2010 that were higher than historical levels. Although nonperforming loans and leases and criticized and classified loans continue to be higher than historical levels, the Company has seen some early signs of improving economic conditions within the market areas in which it operates. The Company has experienced some improvement in its credit quality metrics in recent quarters, including some decreases in the level of internally classified assets and nonperforming assets. However, with the strength of the economic recovery uncertain, there is no assurance that weak economic conditions may not adversely affect the credit quality of the Company’s loans and leases, results of operations, and financial condition going forward.

The provision for loan and lease losses was $1.0 million and $2.9 million, respectively, for the three and six months ended June 30, 2011, compared to $1.4 million and $3.6 million, respectively, for the same periods in 2010. Net charge-offs for the three and six months ended June 30, 2011 were $679,000 and $2.4 million compared to $244,000 and $1.4 million in the comparable year ago periods. Annualized net charge-offs for the first six months of 2010 represent 0.25% of average loans, up from 0.15% for the first six months of 2010, but is favorable to our peer group ratio of 0.94% at March 31, 2011.

Analysis of Past Due and Nonperforming Loans
(dollar amounts in thousands)	06/30/2011			12/31/2010			06/30/2010
Loans 90 days past due and accruing
Commercial and industrial	$	785		$	842		$	322
Commercial real estate		207			0			0
Residential real estate		1,520			368			1,434
Consumer and other		0			0			2
Leases		0			7			0
Total loans 90 days past due and accruing		2,512			1,217			1,758
Nonaccrual loans
Commercial and industrial		5,383			7,271			8,409
Commercial real estate		27,541			24,791			18,207
Residential real estate		5,318			9,111			6,929
Consumer and other		202			309			78
Leases		13			19			22
Total nonaccrual loans		38,457			41,501			33,645
Troubled debt restructurings not included above		0			2,564			3,264
Total nonperforming loans and leases		40,969			45,282			38,667
Other real estate owned		1,742			1,255			1,638
Total nonperforming assets	$	42,711		$	46,537		$	40,305
Allowance as a percentage of loans and leases outstanding		1.48	%		1.46	%		1.40	%
Allowance as a percentage of nonperforming loans and leases		69.23	%		61.46	%		68.61	%
Total nonperforming assets as percentage of total assets		1.30	%		1.43	%		1.27	%

Nonperforming assets include nonaccrual loans, troubled debt restructurings (“TDR”), and foreclosed real estate. Nonperforming assets represented 1.30% of total assets at June 30, 2011, compared to 1.43% at December 31, 2010, and 1.27% at June 30, 2010. Although nonperforming assets as a percentage of total assets are higher than at June 30 of the prior year, the Company has seen some improvement in this ratio over the most recent three quarters from a high of 1.72% at September 30, 2010. While the overall strength of the economy remains uncertain, there are signs of improvement in national and local economic conditions, which have contributed to some improvements in the financial conditions of several of the Company’s commercial and agricultural customers. The Company’s ratio of nonperforming assets to total assets continues to compare favorably to our peer group’s most recent ratio of 3.25% at March 31, 2011.

Nonperforming loans (loans in nonaccrual status, loans past due 90 days or more and still accruing interest, and TDRs) were $41.0 million at June 30, 2011, down from $45.3 million at December 31, 2010, and up from $38.7 million at June 30, 2010. Nonperforming loans represented 2.13% of total loans at June 30, 2011, compared to 2.37% of total loans at December 31, 2010, and 2.03% of total loans at June 30, 2010. A breakdown of nonperforming loans by portfolio segment is shown above. The decrease in nonperforming loans from year-end 2010 is mainly in residential real estate and commercial and industrial loans. Commercial real estate loans represent the largest component of nonperforming loans. Nonperforming commercial real estate loans include one relationship totaling $12.4 million at June 30, 2011, this loan is on nonaccrual and as of June 30, 2011 payments were past due 90 days or more.

Loans are considered modified in a TDR when, due to a borrower’s financial difficulties, the Company makes a concession(s) to the borrower that it would not otherwise consider. These modifications may include, among others, an extension of the term of the loan, and granting a period when interest-only payments can be made, with the principal payments made over the remaining term of the loan or at maturity. TDRs are included in the above table within the following categories: “loans 90 days past due and accruing”, “nonaccrual loans”, or “troubled debt restructurings not included above”. Loans in the latter include loans that meet the definition of a TDR but are performing in accordance with the modified terms.

In general, the Company places a loan on nonaccrual status if principal or interest payments become 90 days or more past due and/or management deems the collectability of the principal and/or interest to be in question, as well as when required by applicable regulations. Although in nonaccrual status, the Company may continue to receive payments on these loans. These payments are generally recorded as a reduction to principal, and interest income is recorded only after principal recovery is reasonably assured. As of June 30, 2011 and December 31, 2010, the Company was regularly receiving payments on over 60% of the loans categorized as nonaccrual.

The Company’s recorded investment in loans and leases that are considered impaired totaled $31.2 million at June 30, 2011, $35.2 million at December 31, 2010. A loan is impaired when, based on current information and events, it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan agreement. Impaired loans consist of our non-homogenous nonaccrual loans, loans that are 90 days or more past due, and all TDRs. Specific reserves on individually identified impaired loans that are not collateral dependent are measured based on the present value of expected future cash flows discounted at the original effective interest rate of each loan. For loans that are collateral dependent, impairment is measured based on the fair value of the collateral less estimated selling costs, and such impaired amounts are generally charged off.

The average recorded investment in impaired loans and leases was $33.3 million at June 30, 2011, $36.9 million at December 31, 2010, and $30.6 million at June 30, 2010. At June 30, 2011, $19.6 million of impaired loans had specific reserve allocations of $2.6 million and $11.6 million had no specific reserve allocation. At December 31, 2010, $15.4 million of impaired loans had specific reserve allocations of $3.2 million and $19.8 million had no specific reserve allocation. The majority of impaired loans are collateral dependent impaired loans that have limited exposure or require limited specific reserve because of the amount of collateral support with respect to these loans and previous charge-offs. Interest payments on impaired loans are typically applied to principal unless collectability of the principal amount is reasonably assured. In these cases, interest is recognized on a cash basis. Interest income recognized on impaired loans and leases, all collected in cash, was $10,000 for the six months ended June 30, 2011 and $147,000 for the same period in 2010.

The ratio of the allowance to nonperforming loans (loans past due 90 days and accruing, nonaccrual loans and restructured troubled debt) was 0.69 times at June 30, 2011, compared to 0.61 times at December 31, 2010, and was in line with June 30, 2010. The slight improvement in the ratio compared to year-end 2010 reflects an increase in the balance of the allowance and a decrease in the balance of nonperforming loans. The Company’s ratio is below our peer group ratio of 0.79 times as of March 31, 2011. The Company’s nonperforming loans are mostly made up of collateral dependent impaired loans requiring little to no specific allowance due to the level of collateral available with respect to these loans and/or previous charge-offs.

Management reviews the loan portfolio continuously for evidence of potential problem loans and leases. Potential problem loans and leases are loans and 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 such loans and leases becoming nonperforming at some time in the future. Management considers loans and leases classified as Substandard, which continue to accrue interest, to be potential problem loans and leases. The Company, through its internal loan review function, identified 66 commercial relationships totaling $49.0 million at June 30, 2011, that were classified as Substandard. This presents an improvement from the 65 commercial relationships totaling $63.9 million at December 31, 2010, which were classified as Substandard, and continued to accrue interest. Of the 66 commercial relationships that were Substandard, there are 12 relationships that equaled or exceeded $1.0 million, which in aggregate totaled $36.8 million. Over the past few years, the Company has seen an increase in potential problem loans as weak economic conditions have strained borrowers’ cash flows and collateral values. The decrease in the dollar volume of potential problem loans since year-end 2010 was mainly due to the upgrade of several large commercial credits to a risk grading better than Substandard. The Company continues to monitor these potential problem relationships; however, management cannot predict the extent to which continued weak economic conditions or other factors may further impact borrowers. 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. However, these loans do 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.

Capital

Total equity was $300.0 million at June 30, 2011, an increase of $26.7 million or 9.8% from December 31, 2010, mainly a result of net income of $18.2 million less cash dividends paid of $7.4 million and a $9.6 million increase in accumulated other comprehensive income.

Additional paid-in capital increased by $6.2 million, from $198.1 million at December 31, 2010, to $204.3 million at June 30, 2011, reflecting $2.5 million attributed to shares issued for an acquisition, $1.1 million related to shares issued for the employee stock ownership plan, $1.3 million related to shares issued for dividend reinvestment plans, $731,000 related to stock option exercises and related tax benefits, and $631,000 related to stock-based compensation. Retained earnings increased by $10.8 million from $76.4 million at December 31, 2010, to $87.2 million at June 30, 2011, reflecting net income of $18.2 million less dividends paid of $7.4 million. Accumulated other comprehensive loss declined from a net unrealized loss of $1.3 million at December 31, 2010 to a net unrealized gain of $8.4 million at June 30, 2011; reflecting a $9.1 million increase in unrealized gains on available-for-sale securities due to lower market rates, and an $565,000 increase related to postretirement benefit plans. Under regulatory requirements, amounts reported as accumulated other comprehensive income/loss related to net unrealized gain or loss on available-for-sale securities and the funded status of the Company’s defined benefit post-retirement benefit plans do not increase or reduce regulatory capital and are not included in the calculation of risk-based capital and leverage ratios.

Cash dividends paid in the first six months of 2011 totaled approximately $7.4 million, representing 40.9% of year to date 2011 earnings. Cash dividends of $0.68 per common share paid in the first six months of 2011 were up 4.6% over cash dividends of $0.65 per common share paid in the first six months of 2010.

The Company and its banking subsidiaries are subject to various regulatory capital requirements administered by Federal banking agencies. The table below reflects the Company’s capital position at June 30, 2011, compared to the regulatory capital requirements for “well capitalized” institutions.

REGULATORY CAPITAL ANALYSIS June 30, 2011

	Actual					Well Capitalized Requirement
(dollar amounts in thousands)	Amount		Ratio			Amount		Ratio
Total Capital (to risk weighted assets)	$	269,193		13.98	%	$	211,464		10.00	%
Tier 1 Capital (to risk weighted assets)	$	295,653		12.73	%	$	126,878		6.00	%
Tier 1 Capital (to average assets)	$	295,653		8.39	%	$	160,397		5.00	%

As illustrated above, the Company’s capital ratios on June 30, 2011 remain above the minimum requirements for well capitalized institutions. Total capital as a percent of risk weighted assets increased 56 basis points from 13.4% at December 31, 2010. Tier 1 capital as a percent of risk weighted assets increased 56 basis points from 12.2% at the end of 2009. Tier 1 capital as a percent of average assets increased 37 basis points from 8.0% at December 31, 2010. The increase in capital ratios over year-end 2010 reflects earnings growth out pacing asset growth.

During the first quarter of 2010, the Comptroller of the Currency (“OCC”) notified the Company that it was requiring Mahopac National Bank, one of the Company’s three banking subsidiaries, to maintain certain minimum capital ratios at levels higher than those otherwise required by applicable regulations. The OCC is requiring Mahopac to maintain a Tier 1 capital to average assets ratio of 8.0%, a Tier 1 risk-based capital to risk-weighted capital ratio of 10.0% and a Total risk-based capital to risk-weighted assets ratio of 12.0%. Mahopac exceeded these minimum requirements at the time of the notification and continues to maintain ratios above these minimums. As of June 30, 2011, Mahopac had a Tier 1 capital to average assets ratio of 9.2%, a Tier 1 risk-based capital to risk-weighted capital ratio of 12.9% and a Total risk-based capital to risk-weighted assets ratio of 14.2%.

As of June 30, 2011, the capital ratios for the Company’s other two subsidiary banks also exceeded the minimum levels required to be considered well capitalized.

In December 2010, the oversight body of the Basel Committee on Banking Supervision published the final rules on capital, leverage and liquidity. Implementation of these new capital and liquidity requirements has created significant uncertainty with respect to future requirements for financial institutions. The Company continues to monitor and evaluate the impact that Basel III may have on our capital ratios.

Deposits and Other Liabilities

Total deposits of $2.6 billion at June 30, 2010 increased $76.1 million or 3.1% from December 31, 2010, due primarily to an $89.9 million increase in interest checking, savings and money market balances and a $13.0 million increase in noninterest bearing deposits offset by a $26.8 million decrease in time deposits. Growth in personal and business deposits accounted for a majority of the increase in savings and money market balances from year end 2010.

Total deposits were up $111.8 million or 4.5% over June 30, 2010. The increase was due to a $122.6 million increase in checking, savings and money market accounts of which $97.8 million was attributable to growth in personal and business segments and $62.0 million of growth in noninterest bearing deposits. This was offset by a decline in time deposits of $72.9 million compared to June 30, 2010, mainly attributable to declines in time deposits less than $100,000 as short term brokered time deposits were not renewed upon maturity.

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 $48.5 million at June 30, 2011, and $43.6 million at December 31, 2010. Management generally views local repurchase agreements as an alternative to large time deposits. The Company’s wholesale repurchase agreements are primarily with the FHLB and amounted to $130.0 million at June 30, 2010, comparable to $140.0 million at December 31, 2010.

The Company’s other borrowings totaled $172.6 million at June 30, 2011, down $71.6 million or 29.3% from $244.2 million at December 31, 2010. Borrowings at June 30, 2011 included $125.0 million in FHLB term advances, $32.1 million in overnight advances and a $13.8 million advance from a money center bank. Borrowings at year-end 2010 included $144.0 million in FHLB term advances, $79.0 million of overnight FHLB advances, and a $19.4 million advance from a money center bank. The decrease in borrowings reflects the pay down of FHLB borrowings as a result of deposit growth and soft loan demand. Of the $125.0 million in FHLB term advances at June 30, 2011, $110.0 million are due over one year. In 2007, the Company elected the fair value option under FASB ASC Topic 825 for a $10.0 million advance with the FHLB. The fair value of this advance increased by $27,000 (net mark-to-market loss of $27,000) over the six months ended June 30, 2011.

Liquidity

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. The Company uses a variety of resources to meet its liquidity needs, which include deposits, cash and cash equivalents, short-term investments, cash flow from lending and investing activities, repurchase agreements, and borrowings. The Company’s Asset/Liability Management Committee monitors asset and liability positions of the Company’s subsidiary banks individually and on a combined basis. The Committee reviews periodic reports on 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, provides 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, discussed above under “Deposits and Other Liabilities”, are a primary and low cost funding source obtained primarily through the Company’s branch network. In addition to core deposits, the Company uses non-core funding sources to support asset growth. These non-core funding sources include time deposits of $100,000 or more, brokered time deposits, municipal money market deposits, securities sold under agreements to repurchase and term advances from the FHLB. Rates and terms are the primary determinants of the mix of these funding sources. Non-core funding sources decreased by $62.1 million or 6.2% from December 31, 2010 to $943.7 million at June 30, 2011. Non-core funding sources, as a percentage of total liabilities, were 31.6% at June 30, 2011, compared to 33.7% at December 31, 2010. The decrease in non-core funding sources was mainly due to the decline of brokered time deposits, FHLB advances, and securities sold under agreements to repurchase, partially offset by an increase in time deposits of $100,000 or more. With the growth in core deposits and soft loan demand over the past several quarters, the Company has paid down non-core funding sources.

Non-core funding sources may require securities to be pledged against the underlying liability. Securities carried at $725.0 million and $682.2 million at June 30, 2011 and December 31, 2010, respectively, were either pledged or sold under agreements to repurchase. Pledged securities represented 66.0% of total securities at June 30, 2011, compared to 67.6% of total securities at December 31, 2010.

Cash and cash equivalents totaled $51.5 million as of June 30, 2011, up from $49.7 million at December 31, 2010. Short-term investments, consisting of securities due in one year or less decreased $20.4 million to $22.1 million from $42.5 million at December 31, 2010. The Company also has $21.1 million of securities designated as trading securities.

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 principal reductions. Total mortgage-backed securities, at fair value, were $660.5 million at June 30, 2011 compared with $560.8 million at December 31, 2010. Outstanding principal balances of residential mortgage loans, consumer loans, and leases totaled approximately $712.7 million at June 30, 2011 as compared to $710.2 million at December 31, 2009. Aggregate amortization from monthly payments on these assets provides significant additional cash flow to the Company.

Liquidity is enhanced by ready access to national and regional wholesale funding sources including Federal funds purchased, repurchase agreements, brokered 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 June 30, 2011, the unused borrowing capacity on established lines with the FHLB was $954.8 million. As members of the FHLB, the Company’s subsidiary banks can use certain unencumbered mortgage-related assets to secure additional borrowings from the FHLB. At June 30, 2011, total unencumbered residential mortgage loans of the Company were $193.9 million. Additional assets may also qualify as collateral for FHLB advances upon approval of the FHLB.

The Company has not identified any trends or circumstances that are reasonably likely to result in material increases or decreases in liquidity in the near term.

The Company continues to evaluate the potential impact on liquidity management of regulatory proposals, including Basel III and those required under the Dodd-Frank Act, as they continue to progress through the final rule-making process.

Item 3. Quantitative and Qualitative Disclosure About Market Risk

Interest rate risk is the primary market risk category associated with the Company’s operations. Interest rate risk refers to the volatility of earnings caused by changes in interest rates. The Company manages interest rate risk using income simulation to measure interest rate risk inherent in its on-balance sheet and off-balance sheet financial instruments at a given point in time. The simulation models are used to estimate the potential effect of interest rate shifts on net interest income for future periods. Each quarter, the Company’s Asset/Liability Management Committee reviews the simulation results to determine whether the exposure of net interest income to changes in interest rates remains within levels approved by the Company’s Board of Directors. The Committee also considers strategies to manage this exposure and incorporates these strategies into the investment and funding decisions of the Company. The Company does not currently use derivatives, such as interest rate swaps, to manage its interest rate risk exposure, but may consider such instruments in the future.

The Company’s Board of Directors has set a policy that interest rate risk exposure will remain within a range whereby net interest income will not decline by more than 10% in one year as a result of a 100 basis point parallel change in rates. Based upon the simulation analysis performed as of May 31, 2011 a 200 basis point parallel upward change in interest rates over a one-year time frame would result in a one-year decrease in net interest income from the base case of approximately 0.69%, while a 100 basis point parallel decline in interest rates over a one-year period would result in a decrease in one-year net interest income from the base case of 0.43%. The simulation assumes no balance sheet growth and no management action to address balance sheet mismatches.

The negative exposure in a rising interest rate environment is mainly driven by the repricing assumptions of the Company’s core deposit base which exceed increases in asset yields in the short-term. Longer-term, the impact of a rising rate environment is positive as the asset base continues to reset at higher levels, while the repricing of the rate sensitive liabilities moderates. The moderate exposure in the 100 basis point decline scenario results from the Company’s assets repricing downward to a greater degree than the rates on the Company’s interest-bearing liabilities, mainly deposits. Rates on savings and money market accounts are at low levels as a result of the historically low interest rate environment experienced in recent years. In addition, the model assumes that prepayments accelerate in the down interest rate environment resulting in additional pressure on asset yields as proceeds are reinvested at lower rates.

In our most recent simulation, the base case scenario, which assumes interest rates remain unchanged from the date of the simulation, showed a slight increase in net interest margin over the next twelve months. This is a result of the bank investing a large portion of the cash that was forecasted as earning the federal funds rate in the previous model assessment.

Although the simulation model is useful in identifying potential exposure to interest rate movements, actual results may differ from those modeled as the repricing, maturity, and prepayment characteristics of financial instruments may change to a different degree than modeled. In addition, the model does not reflect actions that management may employ to manage the Company’s interest rate risk exposure. The Company’s current liquidity profile, capital position, and growth prospects, offer a level of flexibility for management to take actions that could offset some of the negative effects of unfavorable movements in interest rates. Management believes the current exposure to changes in interest rates is not significant in relation to the earnings and capital strength of the Company.

In addition to the simulation analysis, management uses an interest rate gap measure. The table below is a Condensed Static Gap Report, which illustrates the anticipated repricing intervals of assets and liabilities as of June 30, 2011. The Company’s one-year net interest rate gap was a negative $188.1 million or 5.72% of total assets at June 30, 2011, compared with a negative $152.8 million or 4.69% of total assets at December 31, 2010. A negative gap position exists when the amount of interest-bearing liabilities maturing or repricing exceeds the amount of interest-earning assets maturing or repricing within a particular time period. This analysis suggests that the Company’s net interest income is more vulnerable to an increasing rate environment than

it is to a prolonged declining interest rate environment. An interest rate gap measure could be significantly affected by external factors such as a rise or decline in interest rates, loan or securities prepayments, and deposit withdrawals.

Condensed Static Gap – June 30, 2011						Repricing Interval

(in thousands)	Total		0-3 months			3-6 months			6-12 months			Cumulative 12 months

Interest-earning assets1	$	3,012,639	$	687,441		$	180,089		$	319,263		$	1,186,793
Interest-bearing liabilities		2,411,981		1,018,512			175,546			180,870			1,374,928
Net gap position				(331,071	)		4,543			138,393			(188,135	)
Net gap position as a percentage of total assets				(10.07	%)		0.14	%		4.21	%		(5.72	%)

1 Balances of available secrities are shown at amortized cost

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

The Company's management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of June 30, 2011. Based upon that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that as of the end of the period covered by this Report on Form 10-Q the Company’s disclosure controls and procedures were effective.

Changes in Internal Control Over Financial Reporting

There were no changes in the Company’s internal control over financial reporting that occurred during the quarter ended June 30, 2011, that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

The Company is involved in legal proceedings in the normal course of business, none of which are expected to have a material adverse impact on the financial condition or results of operations of the Company.

Item 1A. Risk Factors

There have been no material changes in the risk factors previously disclosed under Item 1A. of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2010.

Item 2. Unregistered Sales of Equity Securities and the Use of Proceeds

Issuer Purchases of Equity Securities

	Total Number of Shares Purchased (a)		Average Price Paid Per Share (b)		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (c)		Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs (d)

April 1, 2011 through April 30, 2011		1,728	$	41.81		0		0

May 1, 2011 through May 31, 2011		460		40.06		0		0

June 1, 2011 through June 30, 2011		0		0		0		0

Total		2,188	$	41.44		0		0

Included in the table above are 1,728 shares purchased in April 2011, at an average cost of $41.81 and 460 shares purchased in May 2011, at an average cost of $40.06 by the trustee of the rabbi trust established by the Company under the Company’s Stock Retainer Plan For Eligible Directors of Tompkins Financial Corporation and Participating Subsidiaries, and were part of the director deferred compensation under that plan.

Recent Sales of Unregistered Securities

None

Item 3. Defaults Upon Senior Securities

None

Item 4. (Removed and Reserved)

Item 5. Other Information

None.

Item 6. Exhibits


31.1	Certification of Principal Executive Officer as required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.

31.2	Certification of Principal Financial Officer as required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.

32.1	Certification of Principal Executive Officer as required by Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended, 18 U.S.C. Section 1350

32.2	Certification of Principal Financial Officer as required by Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended, 18 U.S.C. Section 1350

101*	The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2011, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed consolidated Statements of Condition as of June 30, 2011 and December 31, 2010; (ii) condensed Consolidated Statements of Income for the three and six months ended June 30, 2011 and 2010; (iii) Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2011 and 2010; (iv) condensed Consolidated Statements of Changes in shareholders’ Equity for the six months ended June 30, 2011 and 2010; and, (v) Notes to unaudited Condensed Consolidated Financial Statements.

*	Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 and 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: August 09, 2011

TOMPKINS FINANCIAL CORPORATION

By:	/s/ Stephen S. Romaine
	Stephen S. Romaine
	President and
	Chief Executive Officer
	(Principal Executive Officer)

By:	/s/ Francis M. Fetsko
	Francis M. Fetsko
	Executive Vice President and
	Chief Financial Officer
	(Principal Financial Officer)

EXHIBIT INDEX

Exhibit Number	Description	Pages


31.1	Certification of Principal Executive Officer as required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.	55

31.2	Certification of Principal Financial Officer as required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.	56

32.1	Certification of Principal Executive Officer as required by Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended, 18 U.S.C. Section 1350	57

32.2	Certification of Principal Financial Officer as required by Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended, 18 U.S.C. Section 1350	58

101*	The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2011, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed consolidated Statements of Condition as of June 30, 2011 and December 31, 2010; (ii) condensed Consolidated Statements of Income for the three and six months ended June 30, 2011 and 2010; (iii) Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2011 and 2010; (iv) condensed Consolidated Statements of Changes in shareholders’ Equity for the six months ended June 30, 2011 and 2010; and, (v) Notes to unaudited Condensed Consolidated Financial Statements.

*	Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 and 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.