118 E. Seneca Street, P.O. Box 460,
NOTES TO FINANCIAL
STATEMENTS
DECEMBER 31, 2019
AND 2018
NOTE A: DESCRIPTION OF PLAN
The following description of the Tompkins
Financial Corporation Investment and Stock Ownership Plan (the “Plan”) provides only general information. Participants
should refer to the Plan agreement for a more complete description of the Plan’s provisions.
General
The Plan is a defined contribution plan
covering eligible employees who have met certain age and service requirements. The Plan is administered by the Executive, Compensation/Personnel
Committee appointed by Tompkins Financial Corporation’s Board of Directors, and is subject to the provisions of the Employee
Retirement Income Security Act of 1974 (“ERISA”). All investments of the Plan are participant directed.
Eligibility
All employees are eligible to begin voluntary
contributions and receive matching contributions on the first day of the month immediately following or coinciding with attaining
the age of twenty-one. Employees are eligible for discretionary contributions on the first day of the month immediately following
or coinciding with completing one year of credited service and attaining the age of twenty-one. Leased employees, employees covered
under a collective bargaining agreement and “On Call” employees are not eligible to participate.
Vesting
A participant is immediately vested in
all elective and nonelective contributions and earnings thereon. A participant is 100% vested in the matching contributions after
three years of service.
Contributions
Participants may contribute their entire
eligible compensation, as defined, subject to certain Internal Revenue Service limitations. Participants who have attained age
50 before end of year are eligible to make catch-up contributions. Participants may also contribute amounts representing rollover
distributions from other qualified defined benefit or defined contribution plans. The Plan includes an auto-enrollment provision
whereby all new eligible employees are automatically enrolled in the Plan unless they affirmatively elect not to participate in
the Plan. Automatically enrolled participants have their deferral rate set at 3% of eligible compensation and their contributions
invested in a designated balanced fund until changed by the participant. The pre-tax contribution of an employee who is contributing
less than 10% of eligible compensation, will automatically increase annually by 1% increments up to a maximum of 10% of eligible
compensation, provided the employee has not elected to opt-out of the automatic increase feature. The Plan sponsor matching contributions
are equal to 100% of the first 3% of elective deferral and 50% of the next 2% of elective deferral.
Additionally, the Plan sponsor may contribute
amounts annually at the discretion of the Board of Directors based on a percentage of the total compensation of all eligible participants
during any Plan year. Participants are given the opportunity to elect to receive in cash that portion of their allocation, which
the Board shall designate as eligible for cash election for the Plan year, or they may elect to allocate all or part to their Plan
account maintained on their behalf in the Plan. The Board approved a 3% and 3.5% contribution for 2019 and 2018, respectively.
TOMPKINS FINANCIAL
CORPORATION
INVESTMENT AND
STOCK OWNERSHIP PLAN
NOTES TO FINANCIAL
STATEMENTS, Cont’d
DECEMBER 31, 2019
AND 2018
NOTE A: DESCRIPTION OF PLAN, Cont’d
Notes receivable from participants
Participants may borrow from their fund
accounts a minimum of $1,000 up to a maximum of $50,000, but no more than 50% of the participant’s vested account balance.
The loans are secured by the balance of the participant’s account and bear interest at the bank prime rate plus 1% as declared
quarterly. Principal and interest is paid through payroll deductions over a term of one to five years, except loans used to purchase
a participant’s principal residence which may exceed five years.
Diversification and transfers
Under the Tompkins Financial Corporation
Employee Stock Ownership Plan document, participants meeting certain age and service requirements may elect to diversify the eligible
portion of the Company stock held in their account. The funds elected to be diversified are transferred to the Plan and invested
into funds as chosen by the participant. During 2019 and 2018, participants transferred $122,995 and $183,911, respectively.
Participants’ accounts
Each participant’s account is credited
with the participant’s contributions and Company matching contributions as well as allocations of the Company’s discretionary
contributions and plan earnings. Allocations of company contributions are based upon the participant’s compensation and the
allocations of Plan earnings are based upon participant account balances. The benefit to which a participant is entitled is the
benefit that can be provided from the participant’s vested account.
Payment of benefits
The Plan provides for normal retirement
benefits upon reaching the age of 65 and has provisions for early retirement, disability, death, hardship, in-service and termination
benefits for those participants who are eligible to receive such benefits. A participant may receive the value of the vested interest
in his or her account as a lump-sum distribution or in installments.
Forfeited accounts
Forfeitures of terminated participants’
non-vested accounts are used to reduce employer contributions or to pay Plan expenses. Forfeitures used to reduce employer contributions
and administrative expenses were approximately $80,000 and $6,000, respectively in 2019 and approximately $16,000 and $7,000, respectively
in 2018. Forfeited non-vested accounts to be utilized in future years as of December 31, 2019 was $55,022.
NOTE B: SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Basis of accounting
The financial statements of the Plan are
prepared under the accrual method of accounting.
TOMPKINS FINANCIAL
CORPORATION
INVESTMENT AND
STOCK OWNERSHIP PLAN
NOTES TO FINANCIAL
STATEMENTS, Cont’d
DECEMBER 31, 2019
AND 2018
NOTE B: SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES, Cont’d
Investment valuation and income recognition
The Plan’s investments are reported
at fair value (except for fully benefit-responsive investment contracts, which are reported at contract value). Fair value is the
price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants
at the measurement date. Purchases and sales of investments are recorded on a trade-date basis. Interest income is accrued when
earned. Dividends are recorded on the ex-dividend date. Net appreciation (depreciation) includes the Plan’s gains and losses
on investments bought and sold as well as held during the year, in addition to capital gain distributions.
Notes Receivable from participants
Notes receivable from participants
are measured at their unpaid principal balance plus any accrued but unpaid interest. Delinquent notes receivable from participants
are reclassified as distributions based upon the terms of the Plan document.
Administrative expenses
The Plan’s expenses are paid either
by the Plan, participants, or the Company, as provided by the plan document. Expenses that are paid directly by the Company are
excluded from these financial statements. Certain expenses incurred in connection with the general administration of the Plan that
are paid by the Plan are recorded as deductions in the accompanying statements of changes in net assets available for benefits.
In addition, certain investment related expenses are included in net appreciation (depreciation) of fair value of investments presented
in the accompanying statements of changes in net assets available for benefits.
Use of estimates
The preparation of financial statements
in accordance with accounting principles generally accepted in the United States of America requires the Plan’s management
to make estimates and assumptions that affect the reported amounts of assets and liabilities and changes therein, and disclosure
of contingent assets and liabilities. Actual results could differ from those estimates and assumptions.
Payment of benefits
Benefits are recorded when paid.
TOMPKINS FINANCIAL
CORPORATION
INVESTMENT AND
STOCK OWNERSHIP PLAN
NOTES TO FINANCIAL
STATEMENTS, Cont’d
DECEMBER 31, 2019
AND 2018
NOTE C: FAIR VALUE MEASUREMENTS
Accounting principles generally accepted
in the United States of America provides a framework for measuring fair value. That framework provides 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). The three levels of the fair value hierarchy are described as follows:
Level 1
|
-
|
Inputs
to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that the Plan has
the ability to access.
|
Level 2
|
-
|
Inputs
to the valuation methodology include:
|
|
-
|
Quoted prices for similar assets or liabilities
in active markets;
|
|
-
|
Quoted prices for identical or similar
assets or liabilities in inactive markets;
|
|
-
|
Inputs other than quoted prices that are
observable for the asset or liability;
|
|
-
|
Inputs that are derived principally from
or corroborated by observable market data by correlation or other means.
|
If the asset or liability has
a specified (contractual) term, the Level 2 input must be observable for substantially the full term of the asset or liability.
Level 3
|
-
|
Inputs
to the valuation methodology are unobservable and significant to the fair value measurement.
|
The asset’s or liability’s
fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the
fair value measurement.
Following is a description of the valuation
methodologies used for assets measured at fair value. There have been no changes in the methodologies used at December 31, 2019
and 2018.
Tompkins Financial Corporation common
stock
Tompkins Financial Corporation common stock
is valued at the closing price as listed on the New York Stock Exchange.
Pooled separate accounts
The funds are organized as pooled separate
accounts of Prudential Retirement Insurance and Annuity Company (“PRIAC”), an ultimate wholly-owned subsidiary of Prudential
Financial, Inc., as investment vehicles for qualified retirement plans.
TOMPKINS FINANCIAL CORPORATION
INVESTMENT AND STOCK OWNERSHIP PLAN
NOTES TO FINANCIAL STATEMENTS, Cont’d
DECEMBER 31, 2019 AND 2018
NOTE C: FAIR VALUE MEASUREMENTS,
Cont’d
The pooled separate accounts are valued
using the Net Asset Value (“NAV”) per share of the underlying investments. There are no unfunded commitments for the
pooled separate accounts as of December 31, 2019 and 2018. There is no waiting period or other restrictions on redemptions from
pooled separate accounts.
Mutual funds
Valued at the NAV provided by the administrator
of the fund. The NAV is based on the value of the underlying assets owned by the fund, minus its liabilities, and then divided
by the number of shares outstanding. The NAV is a quoted price in an active market.
The preceding methods as described above
may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore,
while the Plan believes its valuation methods are appropriate and consistent with other market participants, the use of different
methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value
measurement at the reporting date.
The following table sets forth by Level,
within the fair value hierarchy, the Plan’s assets at fair value as of December 31, 2019 and 2018:
|
|
Level 1
|
|
|
Total
|
|
December 31, 2019
|
|
|
|
|
|
|
Tompkins Financial Corporation common stock
|
|
$
|
16,213,292
|
|
|
$
|
16,213,292
|
|
Pooled separate accounts at NAV(1)
|
|
|
—
|
|
|
|
54,783,880
|
|
Mutual Funds
|
|
|
50,094,147
|
|
|
|
50,094,147
|
|
Total investments at fair value
|
|
$
|
66,307,439
|
|
|
$
|
121,091,319
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
|
|
|
|
|
|
|
Tompkins Financial Corporation common stock
|
|
$
|
14,620,370
|
|
|
$
|
14,620,370
|
|
Pooled separate accounts at NAV(1)
|
|
|
—
|
|
|
|
84,111,824
|
|
Total investments at fair value
|
|
$
|
14,620,370
|
|
|
$
|
98,732,194
|
|
|
(1)
|
Certain investments that are measured at fair value using the net asset value per share (or its
equivalent) as a practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in
this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the statements of net
assets available for benefits.
|
NOTE D: GUARANTEED INCOME FUND
The Plan participates in the
Prudential Guaranteed Income Fund (“GIF”), which is an insurance company issued general account backed group annuity
contract. All transactions are at contract value, including discontinuance of the contract.
TOMPKINS FINANCIAL CORPORATION
INVESTMENT AND STOCK OWNERSHIP PLAN
NOTES TO FINANCIAL STATEMENTS, Cont’d
DECEMBER 31, 2019 AND 2018
NOTE D: GUARANTEED INCOME FUND,
Cont’d
Since the guaranteed investment
contract is fully benefit-responsive, it is required to be presented at contract value. Contract value as reported to the Plan
by Prudential, represents contributions made under the contract, plus earnings at guaranteed crediting rates, less participant
withdrawals and administrative fees. Participants may ordinarily direct the withdrawal or transfer of all or a portion of their
account balances at contract value. The GIF is a group annuity insurance product issued by PRIAC, and is backed by the full faith
and creditworthiness of the issuer. Guarantees are based on the claims-paying ability of PRIAC and not on the value of the securities
within the insurer’s general account. Deposits made to the GIF are deposited in PRIAC’s general account. Payment obligations
under the GIF represent an insurance claim supported by all general account assets.
There are generally no events
that could limit the ability of the Plan to transact at contract value paid within 90 days or contract value paid over time. There
are no events that allow the issuer to terminate the contract at an amount different than contract value paid either within 90
days or over time.
NOTE E: TAX STATUS
The Internal Revenue Service has determined
and informed the Plan sponsor by a letter dated April 29, 2014, that the non-standardized prototype plan under which the Plan was
adopted is designed in accordance with the applicable sections of the Internal Revenue Code (“IRC”). The Plan has been
amended since receiving the determination letter. The Plan administrator and the Plan’s legal counsel believe that the Plan
is designed and is currently being operated in compliance with the applicable requirements of IRC.
Accounting principles generally accepted
in the United States of America require plan management to evaluate tax positions taken by the plan and recognize a tax liability
(or asset) if the Plan has taken an uncertain position that more likely than not would not be sustained upon examination by the
Internal Revenue Service. The Plan Administrator has analyzed the tax positions taken by the Plan, and has concluded that as of
December 31, 2019 and 2018, there are no uncertain positions taken or expected to be taken that would require recognition of a
liability (or asset) or disclosure in the financial statements. The Plan is subject to routine audits by taxing jurisdictions;
however, there are currently no audits for any tax periods in progress.
NOTE F: PLAN TERMINATION
Although it has not expressed any intent
to do so, the Plan sponsor has the right under the Plan to discontinue its contributions at any time and to terminate the Plan
subject to the provisions of ERISA. In the event of Plan termination, participants have a fully vested interest in their accounts
and their accounts will be paid to them as provided by the Plan document.
TOMPKINS FINANCIAL CORPORATION
INVESTMENT AND STOCK OWNERSHIP PLAN
NOTES TO FINANCIAL STATEMENTS, Cont’d
DECEMBER 31, 2019 AND 2018
NOTE G: TRANSACTIONS WITH PARTIES-IN-INTEREST
Certain Plan investments are
managed by Prudential and related entities and, therefore, transactions involving these investments qualify as party-in-interest
transactions. Notes receivable from participants also qualify as party-in-interest transactions as defined by ERISA.
The Plan invests in Tompkins Financial
Corporation common stock which represents approximately 11% and 12% of net assets available for benefits at December 31, 2019 and
2018, respectively.
NOTE H: RISKS AND UNCERTAINTIES
The Plan invests in various types of investment
securities. Investment securities are exposed to various risks, such as interest rate, market and credit risks. Due to the level
of risk associated with certain investment securities, it is at least reasonably possible that changes in the values of investment
securities will occur in the near term and that such changes could materially affect participants’ account balances and the
amounts reported in the accompanying statements of net assets available for benefits.
NOTE I: RECONCILIATION OF THE FINANCIAL
STATEMENTS TO FORM 5500
The following is a reconciliation of net
assets available for plan benefits per the financial statements to the Form 5500:
|
|
December
31,
|
|
|
|
2019
|
|
|
2018
|
|
Net assets available for benefits per the financial statements
|
|
$
|
144,890,937
|
|
|
$
|
121,143,794
|
|
Less: Participant contributions receivable
|
|
|
(457,020
|
)
|
|
|
(502,963
|
)
|
Less: Employer contributions receivable
|
|
|
—
|
|
|
|
(14,616
|
)
|
|
|
|
|
|
|
|
|
|
Net assets available for benefits per Form 5500
|
|
$
|
144,433,917
|
|
|
$
|
120,626,215
|
|
TOMPKINS FINANCIAL CORPORATION
INVESTMENT AND STOCK OWNERSHIP PLAN
NOTES TO FINANCIAL STATEMENTS, Cont’d
DECEMBER 31, 2019 AND 2018
NOTE I: RECONCILIATION OF THE FINANCIAL
STATEMENTS TO FORM 5500, Cont’d
The following is a reconciliation of net
increase during the year per the financial statements to net income per the Form 5500:
|
|
2019
|
|
|
|
|
|
Net increase during the year per the financial statements
|
|
$
|
23,624,148
|
|
Add: Prior year participant contributions receivable
|
|
|
502,963
|
|
Add: Prior year employer contributions receivable
|
|
|
14,616
|
|
Less: Current year participant contributions receivable
|
|
|
(457,020
|
)
|
|
|
|
|
|
Net income per the Form 5500
|
|
$
|
23,684,707
|
|
As discussed in Note A, participants are
given the opportunity to elect to receive in cash that portion of their profit sharing allocation which the Board of Directors
shall designate as eligible for cash election for the Plan year or they may elect to allocate all or part to their plan account
maintained on their behalf in the Plan. These elective deferrals are not made by the participant until the year subsequent to the
year in which the profit sharing percentage is approved. Therefore, these elective deferrals are accrued as a receivable to the
Plan in the Plan year that the profit sharing amount is approved. However, these elective deferrals are considered in the relevant
non-discrimination testing in the year that they are received by the Plan.
NOTE J: SUBSEQUENT EVENTS
In
March 2020, the World Health Organization classified the COVID-19 outbreak as a pandemic, triggering volatility in financial markets
and a significant negative impact on the global economy. As a result, the Plan’s investment portfolio has incurred a decline
in fair value since December 31, 2019. However, because the values of the Plan’s individual investments have and will fluctuate
in response to changing market conditions, the amount of losses that will be recognized in subsequent periods, if any, cannot be
determined. The full impact of the COVID-19 outbreak continues to evolve as of the date of this report.
On March 27, 2020 the Coronavirus
Aid, Relief, and Economic Security Act (CARES Act) was signed into law. The CARES Act allows retirement plan
participants to have greater access to their savings if they are impacted by the coronavirus, as defined in the CARES Act.
The following is a summary of the main provisions elected by the Plan Administrator on April 9, 2020:
●
Qualified individuals are permitted through December 31, 2020 to
take a distribution in an amount up to $100,000 without imposition of the 10% early distribution penalty,
and this distribution is not subject to the 20% tax withholding rate. Additionally, individuals taking this withdrawal have
the option to have the withdrawal income taxed over three years with the ability to recontribute within three years.
TOMPKINS FINANCIAL CORPORATION
INVESTMENT AND STOCK OWNERSHIP PLAN
NOTES TO FINANCIAL STATEMENTS, Cont’d
DECEMBER 31, 2019 AND 2018
NOTE J: SUBSEQUENT EVENTS, Cont’d
●
Participant loan limit is temporarily increased to
the lesser of $100,000 or 100% of the vested account balance. This increase is permitted for loans granted
within 180 days after the enactment of the CARES Act.
●
Repayments of loans due between March 27, 2020 and December
31, 2020 may be delayed for one year upon participant request.
TOMPKINS FINANCIAL CORPORATION
INVESTMENT AND STOCK OWNERSHIP PLAN
SUPPLEMENTAL SCHEDULE
TOMPKINS FINANCIAL CORPORATION
INVESTMENT AND STOCK OWNERSHIP PLAN
EIN: 15-0470650
PLAN #: 002