Revenue from Contracts with Customers

Overview

Revenue from contracts with customers in the scope of Accounting Standards Codification (“ASC”) Topic 606 is measured based on the consideration specified in the contract with a customer. The Corporation recognizes revenue from contracts with customers when it satisfies its performance obligations.

The Corporation’s performance obligations are generally satisfied as services are rendered and can either be satisfied at a point in time or over time. Unsatisfied performance obligations at the report date are not material to our unaudited consolidated financial statements.

In certain cases, other parties are involved with providing services to our customers. If the Corporation is a principal in the transaction (providing services itself or through a third party on its behalf), revenues are reported based on the gross consideration received from the customer and any related expenses are reported gross in noninterest expense. If the Corporation is an agent in the transaction (referring customers to another party to provide services), the Corporation reports its net fee or commission retained as revenue.

Accounting Policy Updates

The Corporation adopted Topic 606 “Revenue from Contracts with Customers” effective January 1, 2018 and has applied the guidance to all contracts within the scope of Topic 606 as of that date. As a result, the Corporation has modified its accounting policy for revenue recognition as detailed herein.

As discussed in Note 2, the Corporation applied Topic 606 using the modified retrospective method, therefore, the prior period comparative information has not been adjusted and continues to be reported under Topic 605. There was no cumulative effect adjustment as of January 1, 2018, and there were no material changes to our unaudited consolidated financial statements at or for the nine months ended September 30, 2018, as a result of adopting Topic 606.

The Corporation applied the practical expedient pertaining to contracts with original expected duration of one year or less and does not disclose information about remaining performance obligations on such contracts.

The Corporation also applied the practical expedient pertaining to contracts for which, at contract inception, the period between when the entity transfers the services and when the customer pays for those services will be one year or less. As such, the Corporation does not adjust the consideration from customers for the effects of a significant financing component.

A substantial portion of the Corporation’s revenue is specifically excluded from the scope of Topic 606. For the revenue that is within scope of Topic 606, the following is a description of principal activities from which the Corporation generates its revenue from contracts with customers, separated by the timing of revenue recognition.

Revenue Recognized at a Point in Time

The Corporation recognizes revenue that is transactional in nature and such revenue is earned at a point in time. Revenue that is recognized at a point in time includes card interchange fees (fee income related to debit card transactions), ATM fees, wire transfer fees, overdraft charge fees, and stop-payment and returned check fees. Such revenue is derived from transactional information and is recognized as revenue immediately as the transactions occur or upon providing the service to complete the customer’s transaction.

Revenue Recognized Over Time

The Corporation recognizes revenue over a period of time, generally monthly, as services are performed and performance obligations are satisfied. Such revenue includes wealth management revenues and service charges on deposit accounts. Wealth management revenues are categorized as either asset-based revenues or transaction-based revenues. Asset-based revenues include trust and investment management fees that are earned based upon a percentage of asset values under administration. Transaction-based revenues include financial planning fees, tax preparation fees, commissions and other service fees. Fee revenue from service charges on deposit accounts represent the service charges assessed to customer who hold deposit accounts at the Bank.

Costs of Obtaining Revenue from Contracts with Customers

The Corporation pays commissions and incentives to its employees in accordance with certain employment arrangements and incentive plans. For commissions and incentives that are excluded from the scope of Topic 606, such as those paid to mortgage originator employees, the Corporation expenses these costs when incurred or applies the guidance in ASC Topic 310. For commissions and incentives that are in-scope of Topic 606, such as those paid to employees in our wealth management services and commercial banking segments in order to obtain customer contracts, contract cost assets are established. The contract cost assets are capitalized and amortized over the estimated useful life that the asset is expected to generate benefits. The amortization of the contract cost asset is recorded within salaries and employee benefits expense.

Disaggregation of Revenue

The following table summarizes total revenues as presented in the Unaudited Consolidated Statements of Income and the related amounts which are from contracts with customers within the scope of Topic 606. As shown below, a substantial portion of our revenues are specifically excluded from the scope of Topic 606.



For the three month ended September 30,	2018				2017
(Dollars in thousands)	As reported in Consolidated Statements of Income		Revenue from contracts in scope of Topic 606		As reported in Consolidated Statements of Income		Revenue from contracts in scope of Topic 606
Net interest income		$33,449		$—		$30,059		$—
Noninterest income:
Asset-based wealth management revenues	9,322		9,322		9,791		9,791
Transaction-based wealth management revenues	132		132		222		222
Total wealth management revenues	9,454		9,454		10,013		10,013
Mortgage banking revenues	2,624		—		3,036		—
Service charges on deposit accounts	885		885		942		942
Card interchange fees	983		983		894		894
Income from bank-owned life insurance	572		—		546		—
Loan related derivative income	278		—		1,452		—
Other income	419		419		400		400
Total noninterest income	15,215		11,741		17,283		12,249
Total revenues		$48,664		$11,741		$47,342		$12,249



For the nine months ended September 30,	2018				2017
(Dollars in thousands)	As reported in Consolidated Statements of Income		Revenue from contracts in scope of Topic 606		As reported in Consolidated Statements of Income		Revenue from contracts in scope of Topic 606
Net interest income		$98,412		$—		$88,642		$—
Noninterest income:
Asset-based wealth management revenues	28,413		28,413		28,439		28,439
Transaction-based wealth management revenues	916		916		993		993
Total wealth management revenues	29,329		29,329		29,432		29,432
Mortgage banking revenues	8,403		—		8,295		—
Service charges on deposit accounts	2,651		2,651		2,726		2,726
Card interchange fees	2,791		2,791		2,598		2,598
Income from bank-owned life insurance	1,624		—		1,624		—
Loan related derivative income	1,087		—		2,744		—
Other income	1,066		1,051		1,180		1,139
Total noninterest income	46,951		35,822		48,599		35,895
Total revenues		$145,363		$35,822		$137,241		$35,895

The following table presents revenue from contracts with customers based on the timing of revenue recognition:



(Dollars in thousands)	Three Months				Nine Months
Periods ended September 30,	2018		2017		2018		2017
Revenue recognized at a point in time:
Card interchange fees		$983		$894		$2,791		$2,598
Service charges on deposit accounts	670		741		2,045		2,140
Other income	258		283		732		872
Revenue recognized over time:
Wealth management revenues	9,454		10,013		29,329		29,432
Service charges on deposit accounts	215		201		606		586
Other income	161		117		319		267
Total revenues from contracts in scope of Topic 606		$11,741		$12,249		$35,822		$35,895

Receivables primarily consist of amounts due from customers for wealth management services performed for which the Corporation’s performance obligations have been fully satisfied. Receivables amounted to $5.2 million at September 30, 2018, compared to $5.7 million at December 31, 2017 and were included in other assets in the Unaudited Consolidated Balance Sheets.

Deferred revenues, which are considered contract liabilities under Topic 606, represent advance consideration received from customers for which the Corporation has a remaining performance obligation to fulfill. Contract liabilities are recognized as revenue over the life of the contract as the performance obligations are satisfied. The balances of contract liabilities were insignificant at both September 30, 2018 and December 31, 2017 and were included in other liabilities in the Unaudited Consolidated Balance Sheets.

Contract cost assets (capitalized commission and incentive costs, net of amortization) at September 30, 2018 were insignificant and were included in other assets in the Unaudited Consolidated Balance Sheets.