Loans

12 Months Ended

Dec. 31, 2019

7. LOANS

The following table shows our loan portfolio by category:


	December 31,
(Dollars in thousands)	2019		2018
Commercial and industrial	$	2,046,798	$	1,472,489
Owner-occupied commercial	1,296,466		1,059,974
Commercial mortgages	2,222,976		1,162,739
Construction	581,082		316,566
Commercial small business leases	188,630		—
Residential⁽¹⁾	1,016,500		218,099
Consumer	1,128,731		680,939
	8,481,183		4,910,806
Less:
Deferred fees, net	9,143		7,348
Allowance for loan and lease losses	47,576		39,539
Net loans and leases	$	8,424,464	$	4,863,919

(1)Includes reverse mortgages, at fair value of $16.6 million and $16.5 million at December 31, 2019 and 2018, respectively.

Nonaccruing loans totaled $22.9 million and $30.1 million at December 31, 2019 and 2018, respectively. If interest on all such loans had been recorded in accordance with contractual terms, net interest income would have increased by $1.2 million and $2.0 million in 2019 and 2018, respectively.

Accrued interest receivable on loans outstanding was $31.5 million and $17.0 million at December 31, 2019 and 2018, respectively.

The total amounts of loans serviced for others were $272.0 million and $98.6 million at December 31, 2019 and 2018, respectively, which consisted of residential first mortgage loans, reverse mortgage loans and Small Business Administration (SBA) loans. We received fees from the servicing of loans of $1.2 million and $0.5 million during 2019 and 2018, respectively.

Servicing Assets

We record mortgage servicing rights on our mortgage loan servicing portfolio, which includes mortgages that we acquire or originate as well as mortgages that we service for others, and servicing rights on Small Business Administration (SBA) loans. Mortgage servicing rights and SBA loan servicing rights are included are in Intangible assets in the accompanying Consolidated Statements of Financial Condition. Mortgage loans which we service for others are not included in Loans and leases, net of allowance in the accompanying Consolidated Statements of Financial Condition. Servicing rights represent the present value of the future net servicing fees from servicing mortgage loans we acquire or originate, or that we service for others. The value of our mortgage servicing rights was $1.2 million and $0.3 million at December 31, 2019 and 2018, respectively, and the value of our SBA loan servicing rights was $2.1 million and $1.1 million at December 31, 2019 and 2018, respectively. Changes in the value of these servicing rights resulted in impairment of $0.7 million and $0.2 million during 2019 and 2018, respectively. Revenues from originating, marketing and servicing mortgage loans as well as valuation adjustments related to capitalized mortgage servicing rights are included in Mortgage Banking Activities, Net in the Consolidated Statements of Income and revenues from our SBA loan servicing rights are included in Loan fee income, in the Consolidated Statements of Income.

Acquired Credit Impaired Loans

Under ASC 310-30, acquired loans are generally considered accruing and performing as the loans accrete interest income over the estimated life of the loan when expected cash flows are reasonably estimable. Accordingly, acquired impaired loans that are contractually past due are still considered to be accruing and performing as long as the estimated cash flows are expected to be received. If the timing and amount of cash flows is not reasonably estimable, the loans may be classified as nonaccrual loans and interest income may be recognized on a cash basis or as a reduction of the principal amount outstanding. Credit deterioration evident at the acquisition date is included in the determination of the fair value of the loans at the acquisition date. Updates to expected cash flows for acquired impaired loans accounted for under ASC 310-30 since acquisition have resulted in a provision for loan losses of $0.4 million and $0.2 million in 2019 and 2018, respectively, due to changes in the amount and timing of expected cash flows subsequent to acquisition.

Upon the closing of the Beneficial acquisition on March 1, 2019, we acquired $37.0 million of credit impaired loans. The following table details the loans acquired from Beneficial that are accounted for in accordance with ASC 310-30, as of the date of the acquisition.


(Dollars in thousands)	March 1, 2019
Contractual required principal and interest at acquisition	$	53,647
Contractual cash flows not expected to be collected (nonaccretable difference)	20,118
Expected cash flows at acquisition	33,529
Interest component of expected cash flows (accretable yield)	3,068
Fair value of acquired loans accounted for under ASC 310-30	$	30,461

The following is the outstanding principal balance and carrying amounts for all acquired credit impaired loans for which the company applies ASC 310-30 as of December 31, 2019 and 2018:


(Dollars in thousands)	December 31, 2019		December 31, 2018
Outstanding principal balance	$	39,451	$	18,642
Carrying amount	26,535		14,718
Allowance for loan losses	400		227

The following table presents the changes in accretable yield on all acquired credit impaired loans for the years indicated:


(Dollars in thousands)	Accretable Yield
Balance at December 31, 2017	$	3,035
Accretion	(1,704)
Reclassification from nonaccretable difference	1,527
Additions/adjustments	(395)
Disposals	—
Balance at December 31, 2018	$	2,463
Accretion	(2,304)
Reclassification from nonaccretable difference	207
Additions/adjustments	5,474
Disposals	—
Balance at December 31, 2019	$	5,840