Stock Plans and Stock Based Compensation

12 Months Ended

Dec. 31, 2011

Notes to Financial Statements

Stock Plans and Stock Based Compensation

Note 14 Stock Plans and Stock Based Compensation

Under the Tompkins Financial Corporation 2009 Equity Plan (“2009 Equity Plan”), the Company may grant incentive stock options, stock appreciation rights, shares of restricted stock and restricted stock units covering up to 902,000 common shares to certain officers, employees, and nonemployee directors.  Stock options are granted at an exercise price equal to the stock’s fair value at the date of grant, may not have a term in excess of ten years, and have vesting periods that range between one and seven years from the grant date. Prior to the adoption of the 2009 Equity Plan, the Company had similar stock option plans, which remain in effect solely with respect to unexercised options issued under these plans.

The Company granted 155,725 equity awards to its employees in the third quarter of 2011.  The third quarter 2011 awards included 37,725 shares of restricted stock and 118,000 shares of stock appreciation rights.  The Company granted 1,800 equity awards to its employees in 2010, including 1,600 of stock appreciation rights and 200 of restricted stock. The Company granted 235,070 equity awards to its employees in the third quarter of 2009.  The third quarter 2009 awards included 14,190 of restricted stock and 220,880 of stock appreciation rights. The Company’s practice is to issue original issue shares of its common stock upon exercise of equity awards rather than treasury shares.

The following table presents the activity related to stock options under all plans for the twelve months ended December 31, 2011.

	Number of Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term		Aggregate Intrinsic Value
Outstanding at January 1, 2011		966,536		$	37.78
Granted		118,000		$	37.00
Exercised		(29,731	)	$	33.15
Forfeited		(27,581	)	$	39.93
Expired		(10,591	)	$	36.55
Outstanding at December 31, 2011		1,016,633		$	37.78		5.52	$	1,441,774
Exercisable at December 31, 2011		519,002		$	36.64		3.96	$	1,106,374

Total stock-based compensation expense for stock options was $1.1 million in 2011, $1.1 million in 2010, and $912,000 in 2009.  As of December 31, 2011, unrecognized compensation cost related to unvested stock options totaled $4.1 million. The cost is expected to be recognized over a weighted average period of 4.4 years.   Cash proceeds, tax benefits and intrinsic value related to total stock options exercised is as follows:

(In thousands)	2011		2010		2009
Proceeds from stock option exercises	$	886	$	1,500	$	1,000
Tax benefits related to stock option exercises		16		212		163
Intrinsic value of stock option exercises		196		900		730

The Company uses the Black-Scholes option-valuation model to determine the fair value of each incentive stock options and stock appreciation rights at the date of grant.  This valuation model estimates fair value based on the assumptions listed in the table below.  The risk-free interest rate is the interest rate available on zero-coupon U.S. Treasury instruments with a remaining term equal to the expected term of the share option at the time of grant.  The expected dividend yield is based on dividend trends and the market price of the Company’s stock price at grant.  Volatility is largely based on historical volatility of the Company’s stock price.  Expected term is based upon historical experience of employee exercises and terminations as well as the vesting term of the grants.

	2011			2010			2009
Weighted per share average fair value at grant date	$	9.26		$	13.12		$	13.12
Risk-free interest rate		1.28	%		2.90	%		2.90	%
Expected dividend yield		4.10	%		3.13	%		3.13	%
Volatility		39.19	%		40.03	%		40.03	%
Expected life (years)		6.50			6.50			6.50

	Options Outstanding						Options Exercisable
Range of Exercise Prices	Number Outstanding		Weighted Average Remaining Contractual Life		Weighted Average Exercise Price		Number Exercisable		Weighted Average Exercise Price
$20.00-29.30		59,782		0.76	$	29.30		59,782	$	29.30
$29.31-35.70		8,011		2.04	$	34.95		8,011	$	34.95
$35.71-36.00		133,032		2.34	$	35.77		133,032	$	35.77
$36.01-37.50		377,684		7.08	$	37.19		132,344	$	37.28
$37.51-41.00		234,404		4.24	$	38.68		150,887	$	38.65
$41.01-50.00		203,720		7.70	$	41.75		34,946	$	41.79
		1,016,633		5.52	$	37.78		519,002	$	36.64

The Company granted 37,725 restricted stock awards in the third quarter of 2011with a grant date fair value of $37.00.  The Company granted 200 restricted stock awards during the first quarter of 2010, with a grant date fair value of $38.14 and 14,190 restricted stock awards during the third quarter of 2009, with a grant date fair value of $41.71.  The grant date fair values were the closing prices of the Company’s common stock on the three grant dates.  Prior to 2009, there were no restricted stock awards. The Company recognized stock-based compensation related to these restricted stock awards of $149,000 in 2011, $79,000 in 2010 and $26,000 in 2009. Unrecognized compensation costs related to the restricted stock awards totaled $1.7 million at December 31, 2011 and will be recognized over 6.2 years on a weighted average basis.

	Number of Shares			Weighted Average Exercise Price
Unvested at January 1, 2011		13,950		$	41.66
Granted		37,725			37.00
Vested		(2,159	)		41.71
Forfeited		(660	)		41.71
Unvested at December 31, 2011		48,856		$	38.06