ORRSTOWN FINANCIAL SERVICES INCORRF
ORRSTOWN FINANCIAL SERVICES INC Revenue Disclosure
REVENUE FROM CONTRACTS WITH CLIENTS
ASU 2014-09, Revenue from Contracts with Customers (Topic 606) and all subsequent amendments (collectively “ASC 606”) represents a common revenue standard that clarifies the principles for recognizing revenue. The core principle of ASC 606 is that an entity should recognize revenue to depict the transfer of promised goods or services to clients in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The majority of the Company's revenue comes from interest income, including loans and securities, which are outside the scope of ASC 606. The Company's services that fall within the scope of ASC 606 are presented within noninterest income on the consolidated statements of income and are recognized as revenue as the Company satisfies its obligation to the client. Services within the scope of ASC 606 include service charges on deposit accounts, income from trust and investment management and brokerage activities and interchange fees from service charges on ATM and debit card transactions. ASC 606 did not result in a change to the accounting for any in-scope revenue streams; as such, no cumulative effect adjustment was recorded.
Descriptions of revenue generating activities that are within the scope of ASC 606 are as follows:
Service Charges on Deposit Accounts - The Company earns fees from its deposit clients for transaction-based, account maintenance, and overdraft services. Transaction-based fees, which include services such as ATM use fees to clients and non-clients (included in other service charges, commissions and fees in the consolidated statements of income), stop payment charges, statement rendering, and ACH fees, are recognized at the time the transaction is executed as that is the point in time the Company fulfills the client's request. Account maintenance fees, which relate primarily to monthly maintenance, are earned over the course of a month, representing the period over which the Company satisfies the performance obligation. Overdraft fees are recognized at the point in time that the overdraft occurs. Service charges on deposits are withdrawn from the client's account balance.
Trust and Investment Management Income - The Company earns wealth management and investment brokerage fees from its contracts with trust and wealth management clients to manage assets for investment, and/or to transact on their accounts. These fees are primarily earned over time as the Company provides the contracted services and are generally assessed based on a tiered scale of the market value of assets under management. Fees that are transaction based, including trade execution services, are recognized at the point in time that the transaction is executed, i.e., the trade date. Other related services provided included financial planning services and the associated fees the Company earns, which are based on a fixed fee schedule, are recognized when the services are rendered. Services are generally billed in arrears and a receivable is recorded until fees are paid. At December 31, 2024, 2023 and 2022, the Company had receivables from trust and wealth management clients totaling $777 thousand, $697 thousand and $641 thousand, respectively.
Brokerage Income - The Company earns fees from investment management and brokerage services provided to its clients through a third-party service provider. The Company receives commissions from the third-party service provider and recognizes income on a weekly basis based upon client activity. As the Company acts as an agent in arranging the relationship between the client and the third-party service provider and does not control the services rendered to the clients, brokerage income is presented net of related costs.
Interchange Income - The Company earns interchange fees from debit/credit cardholder transactions conducted through the MasterCard payment network. Interchange fees from cardholder transactions represent a percentage of the underlying transaction value and are recognized daily, concurrently with the transaction processing services provided to the cardholder. Interchange income is presented net of cardholder rewards.
The following table presents the Company's noninterest income disaggregated by revenue source for the years ended December 31, 2024, 2023 and 2022:
| 2024 | 2023 | 2022 | |||||||||||||||
| Service charges on deposit accounts and ATM fees | $ | 5,700 | $ | 4,266 | $ | 4,157 | |||||||||||
| Trust and investment management income | 11,501 | 7,691 | 7,631 | ||||||||||||||
| Brokerage income | 4,852 | 3,649 | 3,620 | ||||||||||||||
| Interchange income | 5,259 | 3,873 | 4,056 | ||||||||||||||
| Revenue from contracts with clients | 27,312 | 19,479 | 19,464 | ||||||||||||||
| Other service charges | 1,193 | 600 | 456 | ||||||||||||||
| Mortgage banking activities | 1,835 | 591 | 407 | ||||||||||||||
| Income from life insurance | 3,866 | 2,482 | 2,339 | ||||||||||||||
| Swap fee income | 1,676 | 1,039 | 2,632 | ||||||||||||||
| Other income | 1,304 | 1,508 | 1,814 | ||||||||||||||
| Investment securities gains (losses) | 249 | (47) | (160) | ||||||||||||||
| Total noninterest income | $ | 37,435 | $ | 25,652 | $ | 26,952 | |||||||||||
About Revenue Disclosures
Revenue disclosures under ASC 606 explain how a company identifies performance obligations, allocates transaction prices, and determines when revenue is recognized. This section is essential for understanding whether reported revenue reflects genuine economic activity or aggressive accounting choices. Analysts examine the mix of point-in-time versus over-time recognition, which directly affects revenue timing and comparability.
Key signals: rising contract liabilities (deferred revenue) suggest strong future revenue visibility, while declining contract assets may indicate slowing project milestones. Watch for variable consideration estimates — rebates, returns, and performance bonuses that require management judgment. Significant changes in disaggregated revenue by geography or product line can reveal shifting business mix before it appears in headline numbers. Compare revenue growth against contract liability growth to assess sustainability, and scrutinize any changes in the timing of recognition that coincide with earnings pressure.