NOTES
TO FINANCIAL STATEMENTS
DECEMBER
31, 2020 AND 2019
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 (the “Board”) 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% contribution for both 2020 and 2019.
TOMPKINS
FINANCIAL CORPORATION
INVESTMENT
AND STOCK OWNERSHIP PLAN
NOTES
TO FINANCIAL STATEMENTS
DECEMBER
31, 2020 AND 2019
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.
As
a result of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), which was signed into law on March
27, 2020, the participant loan limit was temporarily increased to the lessor of $100,000 or 100% of the vested account balance.
This increase is permitted for loans made to qualified individuals, on or after March 27, 2020 and before September 23, 2020.
In addition, repayments of loans by qualified individuals due between March 27, 2020 and December 31, 2020 may be delayed for
one year upon participant request.
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 2020 and 2019, participants transferred $184,118
and $122,995, 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.
As
a result of the CARES Act, 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 distribution have the option to spread the tax over three years with the ability to
recontribute up to the full amount of the distributions within three years and not be subjected to tax as a result.
TOMPKINS
FINANCIAL CORPORATION
INVESTMENT
AND STOCK OWNERSHIP PLAN
NOTES
TO FINANCIAL STATEMENTS
DECEMBER
31, 2020 AND 2019
NOTE
A: DESCRIPTION OF PLAN, Cont’d
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 $73,000 and $1,000, respectively, in 2020
and approximately $80,000 and $6,000, respectively, in 2019. Forfeited non-vested accounts to be utilized in future years as of
December 31, 2020 amounted to $57,303.
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 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 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 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
DECEMBER
31, 2020 AND 2019
NOTE
B: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Cont’d
Subsequent
events
The
Plan has evaluated subsequent events and determined no subsequent events have occurred requiring adjustments to the financial
statements or disclosures.
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, 2020 and 2019.
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
DECEMBER
31, 2020 AND 2019
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, 2020 and 2019. 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,
2020 and 2019:
|
|
Level 1
|
|
|
Total
|
|
December 31, 2020
|
|
|
|
|
|
|
Tompkins Financial Corporation common stock
|
|
$
|
13,010,088
|
|
|
$
|
13,010,088
|
|
Pooled separate accounts at NAV(1)
|
|
|
—
|
|
|
|
59,346,636
|
|
Mutual funds
|
|
|
59,442,211
|
|
|
|
59,442,211
|
|
Total investments, at fair value
|
|
$
|
72,452,299
|
|
|
$
|
131,798,935
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
(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
DECEMBER
31, 2020 AND 2019
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, 2020 and 2019, 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
DECEMBER
31, 2020 AND 2019
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 8% and 11% of net assets available
for benefits at December 31, 2020 and 2019, 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.
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. The values of the Plan’s individual investments have and will fluctuate
in response to changing market conditions and therefore, 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.
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,
|
|
|
|
2020
|
|
|
2019
|
|
Net assets available for benefits per the financial statements
|
|
$
|
160,194,433
|
|
|
$
|
144,890,937
|
|
Less: Participant contributions receivable
|
|
|
(497,395
|
)
|
|
|
(457,020
|
)
|
|
|
|
|
|
|
|
|
|
Net assets available for benefits per the Form 5500
|
|
$
|
159,697,038
|
|
|
$
|
144,433,917
|
|
TOMPKINS
FINANCIAL CORPORATION
INVESTMENT
AND STOCK OWNERSHIP PLAN
NOTES
TO FINANCIAL STATEMENTS
DECEMBER
31, 2020 AND 2019
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:
|
|
2020
|
|
|
|
|
|
Net increase during the year per the financial statements
|
|
$
|
15,119,378
|
|
Add: Prior year participant contributions receivable
|
|
|
457,020
|
|
Less: Current year participant contributions receivable
|
|
|
(497,395
|
)
|
|
|
|
|
|
Net income per the Form 5500
|
|
$
|
15,079,003
|
|
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.
TOMPKINS
FINANCIAL CORPORATION
INVESTMENT
AND STOCK OWNERSHIP PLAN
SUPPLEMENTAL
SCHEDULE
TOMPKINS
FINANCIAL CORPORATION
INVESTMENT
AND STOCK OWNERSHIP PLAN
EIN:
15-0470650
PLAN
#: 002