P.O. Box 460, The Commons
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2016 AND 2015
NOTE A: DESCRIPTION OF PLAN
The following description of the Tompkins
Financial Corporation Employee 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 an employee stock ownership
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 non-participant directed.
Eligibility
An employee shall become eligible for
participation in the Plan on the first day of the month 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
Participants will become vested in all
contributions and earnings over a three-year period.
Contributions
Tompkins Financial Corporation shall
contribute to the Plan a discretionary amount, which shall not exceed 5% of participant compensation. The Executive, Compensation/Personnel
Committee approved a 4.0% and 3.5% discretionary contribution to the Plan for the years ended December 31, 2016 and 2015, respectively.
These contributions are used by the Employee Stock Ownership Plan to acquire company common stock. These common stock shares are
allocated annually to participant accounts. The Plan sponsor has the right to discontinue such discretionary contributions at any
time.
Diversification and transfers
Diversification is offered to participants
close to retirement so that they may have the opportunity to move part of the value of their investment in the Plan sponsor stock
into investments which are more diversified. Participants who are at least age 55 with at least 10 years of participation in the
Plan may elect to diversify a portion of their account. Diversification is offered to each eligible participant over multiple years.
In each of the first five years, a participant may diversify up to 25 percent of the number of post-1986 shares allocated to his
or her account, less any shares previously diversified. After the fifth year, the percentage changes to 50 percent. The funds elected
to be diversified are transferred to the Tompkins Financial Corporation Investment and Stock Ownership Plan (“ISOP”)
and invested in funds as chosen by the participant. During the years ended December 31, 2016 and 2015, the Plan transferred
$75,552 and $207,109 into the ISOP, respectively.
TOMPKINS FINANCIAL CORPORATION
EMPLOYEE STOCK OWNERSHIP PLAN
NOTES TO FINANCIAL STATEMENTS, Cont’d
DECEMBER 31, 2016 AND 2015
NOTE A: DESCRIPTION OF PLAN
, Cont’d
Participants’ accounts
Each participant’s account is credited
with an allocation of the Tompkins Financial Corporation’s discretionary and non-elective contributions and an allocation
of 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 account. Forfeitures of non-vested account balances are allocated to participants’
accounts as company contributions.
Payment of benefits
Upon termination of service, the participant’s
account is either maintained in the Plan, transferred to an individual retirement account in the participant’s name, directly
rolled over into a qualified retirement plan or paid to the participant in a lump sum.
Forfeitures
Plan forfeitures are allocated to each
participant's account based upon the relation of the participant's eligible compensation to total eligible compensation for the
Plan year. Forfeited non-vested accounts to be allocated to participant accounts in future years as of December 31, 2016 and 2015,
were $36,606 and $87,800, respectively.
NOTE B: SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Basis of accounting
The financial statements of the Plan
are prepared under the accrual method of accounting.
Investment valuation and income recognition
The Plan’s investments are stated
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. Interest income is accrued when earned. Dividends are recorded on the ex-dividend date.
Administrative expenses
The Plan’s expenses are paid either
by the Plan or the Plan sponsor, as provided by the plan document. Expenses that are paid directly by the Plan sponsor are excluded
from these financial statements. In addition, certain investment related expenses are included in net appreciation of fair value
of investments presented in the accompanying statement of changes in net assets available for benefits.
TOMPKINS FINANCIAL CORPORATION
EMPLOYEE STOCK OWNERSHIP PLAN
NOTES TO FINANCIAL STATEMENTS, Cont’d
DECEMBER 31, 2016 AND 2015
NOTE B: SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Cont’d
Use of estimates in the preparation of financial
statements
The preparation of financial statements
in conformity 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.
New accounting pronouncements
In May 2015, the Financial Accounting
Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2015-07,
Fair Value Measurement (Topic 820): Disclosures
for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent)
. ASU 2015-07 removes the requirement
to categorize within the fair value hierarchy all investments for which fair value is measured using the net asset value per share
(NAV) practical expedient. It also eliminates certain disclosures for all investments that are eligible to be measured at fair
value using the NAV practical expedient. ASU 2015-07 requires retrospective application and is effective for fiscal years beginning
after December 15, 2015. In 2016, the Plan adopted the provisions of this new standard. Accordingly, the standard was retrospectively
applied.
In July 2015, the
FASB issued ASU No. 2015-12,
Plan Accounting: Defined Benefit Pension Plans (Topic 960), Defined Contribution Pension Plans
(Topic 962), Health And Welfare Benefit Plans (Topic 965): (Part I) Fully Benefit-Responsive Investment Contracts, (Part II) Plan
Investment Disclosures, (Part III) Measurement Date Practical Expedient
. Part I eliminates the requirements to measure the
fair value of fully benefit-responsive investment contracts (FBRICs) and provide certain disclosures. Part II eliminates the requirements
to disclose individual investments that represent 5 percent or more of net assets available for benefits and the net appreciation
or depreciation in fair value of investments by general type. Part II also simplifies the level of disaggregation of investments
that are measured using fair value. Plans will continue to disaggregate investments that are measured using fair value by general
type; however, plans are no longer required to also disaggregate investments by nature, characteristics and risks. Further, the
disclosure of information about fair value measurements shall be provided by general type of plan asset. Part III is not applicable
to the Plan. ASU 2015-12 requires retrospective application and is effective for fiscal years beginning after December 15, 2015.
In 2016, the Plan adopted the provisions of this new standard. Accordingly, the standard was retrospectively applied.
Subsequent events
The Plan has evaluated
subsequent events and determined no significant subsequent events have occurred requiring adjustments to the financial statements
or disclosures.
TOMPKINS FINANCIAL CORPORATION
EMPLOYEE STOCK OWNERSHIP PLAN
NOTES TO FINANCIAL STATEMENTS, Cont’d
DECEMBER 31, 2016 AND 2015
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 below:
Level 1
Inputs to the valuation methodology are unadjusted
quoted prices for identical assets or liabilities in active markets.
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 and 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. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable
inputs.
Following is a description of the valuation
methodology used for assets measured at fair value. There have been no changes in the methodologies used at December 31, 2016 and
2015.
Tompkins Financial Corporation Common
Stock
: Valued at the closing price reported on the active market on which the stock is traded.
The preceding method described 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.
TOMPKINS FINANCIAL CORPORATION
EMPLOYEE STOCK OWNERSHIP PLAN
NOTES TO FINANCIAL STATEMENTS, Cont’d
DECEMBER 31, 2016 AND 2015
NOTE C: FAIR VALUE MEASUREMENTS
,
Cont’d
The following table sets forth by level, within
the fair value hierarchy, the Plan’s assets at fair value as of December 31, 2016 and 2015:
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
December 31, 2016
|
|
|
|
|
|
|
|
|
Tompkins Financial Corporation
|
|
|
|
|
|
|
|
|
common stock
|
|
$
|
56,814,600
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
56,814,600
|
|
|
|
$
|
56,814,600
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
56,814,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tompkins Financial Corporation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
common stock
|
|
$
|
33,135,003
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
33,135,003
|
|
|
|
$
|
33,135,003
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
33,135,003
|
|
NOTE D: GUARANTEED INCOME FUND
The Plan maintains a fully benefit-responsive
investment contract, the guaranteed income fund, with Prudential Retirement Insurance and Annuity Company. Because the contract
is fully benefit-responsive, contract value is the relevant measurement attribute for that portion of the net assets available
for benefits attributable to the investment contract. The contract is presented on the face of the statements of net assets available
for benefits at contract value, which approximates fair value.
TOMPKINS FINANCIAL CORPORATION
EMPLOYEE STOCK OWNERSHIP PLAN
NOTES TO FINANCIAL STATEMENTS, Cont’d
DECEMBER 31, 2016 AND 2015
NOTE E: TAX STATUS
The Internal Revenue Service has determined
and informed the Company by a letter dated September 13, 2013, that the Plan and related trust are designed in accordance with
the applicable sections of the Internal Revenue Code (IRC). The Plan has been amended since receiving the determination letter.
However, 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, 2016 and 2015, 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.
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.
NOTE G: TRANSACTIONS WITH PARTIES-IN-INTEREST
The Plan invests in shares of the Guaranteed
Income Fund managed by an affiliate of Prudential Retirement. Prudential Retirement acts as trustee for only those investments
as defined by the Plan. Transactions in this investment qualify as party-in-interest transactions which are exempt from the prohibited
transactions rules.
Tompkins Financial Corporation is the
Plan sponsor. The Plan invests primarily in Tompkins Financial Corporation common stock.
NOTE H: RISKS AND UNCERTAINTIES
The Plan invests primarily in Tompkins
Financial Corporation common stock. These investment securities are exposed to 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.
TOMPKINS FINANCIAL CORPORATION
EMPLOYEE STOCK OWNERSHIP PLAN
SUPPLEMENTAL SCHEDULES
TOMPKINS FINANCIAL CORPORATION
EMPLOYEE STOCK OWNERSHIP PLAN
EIN: 15-0470650
PLAN #: 003