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LOANS

6 Months Ended

Jun. 30, 2020

SEC Schedule, 12-29, Real Estate Companies, Investment in Mortgage Loans on Real Estate [Abstract]

6. LOANS

The Company invests in residential, commercial and corporate loans. Loans are classified as either held for investment or held for sale. Loans are also eligible to be accounted for under the fair value option. Excluding loans transferred or pledged to securitization vehicles, as of June 30, 2020 and December 31, 2019, the Company reported $1.2 billion and $1.6 billion, respectively, of loans for which the fair value option was elected. If loans are held for investment and the fair value option has not been elected, they are accounted for at amortized cost less impairment. If the Company intends to sell or securitize the loans and the securitization vehicle is not expected to be consolidated, the loans are classified as held for sale. If loans are held for sale and the fair value option was not elected, they are accounted for at the lower of cost or fair value. Any origination fees and costs or purchase premiums or discounts are deferred and recognized upon sale. The Company determines the fair value of loans held for sale on an individual loan basis.

Allowance for Losses – The Company evaluates the need for a loss reserve on each of its loans classified as held-for-investment where the fair value option is not elected. Allowance for loan losses are written off in the period the loans are deemed uncollectible.

Given the unique nature of each underlying borrower and any collateral, the Company assesses an allowance for each individual loan held-for-investment. A provision is established at origination or acquisition that reflects management’s estimate of the total expected credit loss over the expected life of the loan. In estimating the lifetime expected credit losses, management utilizes a probability of default and loss given default methodology (“Loss given default methodology”), which considers projected economic conditions over the reasonable and supportable forecast period. The forecast incorporates primarily market-based assumptions including, but not limited to, forward interest rate curves, unemployment rate estimates and certain indexes sourced from third party vendors. For any remaining period of the expected life of the loan after the reasonable and supportable period, the Company reverts to historical losses on a straight-line basis. Management uses third-party vendors’ loan pool data for loans with similar risk characteristics to estimate historical losses given the limited loss history of the Company’s loan portfolio. Changes in the lifetime expected credit loss are reflected in Loan loss provision in the Consolidated Statements of Comprehensive Income (Loss).

For loans experiencing credit deterioration, the Company may use a different methodology to determine the expected credit losses such as a discounted cash flow analysis. For collateral-dependent loans, if foreclosure is probable, expected credit losses are based on the fair value of the collateral at the reporting date, adjusted for any selling costs, if applicable. Additionally, the Company may elect the practical expedient for a financial asset for which the repayment is expected to be provided substantially through the operation or sale of the collateral when the borrower is experiencing financial difficulty by measuring the allowance as the difference between the fair value of the collateral, less costs to sell, if applicable, and the amortized cost basis of the financial asset at the reporting date. The Company’s commercial loans are collateralized by commercial real estate including, but not limited to, multifamily real estate, office and retail space, hotels and industrial space. At origination, the fair value of the collateral generally exceeds the principal loan balance.

Management assesses the credit quality of the portfolio and adequacy of loan loss reserves on a quarterly basis, or more frequently as necessary. Significant judgment is required in this analysis. Depending on the expected recovery of its investment, the Company considers the estimated net recoverable value of the loans as well as other factors, including but not limited to the fair value of any collateral, the amount and the status of any senior debt, the prospects for the borrower and the competitive landscape where the borrower conducts business. To determine if loan loss allowances are required on investments in corporate debt, the Company reviews the monthly and/or quarterly financial statements of the borrowers, verifies loan compliance packages, if applicable, and analyzes current results relative to budgets and sensitivities performed at inception of the investment. Because these determinations

are based upon projections of future economic events, which are inherently subjective, the amounts ultimately realized may differ materially from the carrying value as of the reporting date.

The Company may be exposed to various levels of credit risk depending on the nature of its investments and credit enhancements, if any, supporting its assets. The Company’s core investment process includes procedures related to the initial approval and periodic monitoring of credit risk and other risks associated with each investment. The Company’s investment underwriting procedures include evaluation of the underlying borrowers’ ability to manage and operate their respective properties or companies. Management reviews loan-to-value metrics at origination or acquisition of a new investment and if events occur that trigger re-evaluation by management.

The Company recorded loan loss provisions of $68.8 million and $168.1 million for the three and six months ended June 30, 2020, respectively. The Company recorded loan loss provisions of $0.0 and $5.7 million for the three and six months ended June 30, 2019, respectively. As of June 30, 2020 and December 31, 2019, the Company’s loan loss provision was $206.7 million and $20.1 million, respectively.

The following table presents the activity of the Company’s loan investments, including loans held for sale and excluding loans transferred or pledged to securitization vehicles, for the six months ended June 30, 2020:



	Residential			Commercial			Corporate Debt			Total
	(dollars in thousands)
Beginning balance January 1, 2020	$	1,647,787		$	669,713		$	2,144,850		$	4,462,350
Impact of adopting CECL	—			(3,600		)	(29,653		)	(33,253		)
Purchases / originations	841,507			187,195			663,396			1,692,098
Sales and transfers⁽¹⁾	(1,184,947		)	(97,623		)	(299,628		)	(1,582,198		)
Principal payments	(98,636		)	(59,675		)	(273,556		)	(431,867		)
Gains / (losses)⁽²⁾	(33,035		)	(78,648		)	(26,917		)	(138,600		)
(Amortization) / accretion	(4,155		)	1,524			6,772			4,141
Ending balance June 30, 2020	$	1,168,521		$	618,886		$	2,185,264		$	3,972,671

⁽¹⁾ Includes securitizations, syndications and transfers to securitization vehicles.
⁽²⁾ Includes loan loss allowances.

The carrying value of the Company’s residential loans held for sale was $61.1 million and $66.7 million at June 30, 2020 and December 31, 2019, respectively. There were no commercial loans held for sale at June 30, 2020 and December 31, 2019.

The Company also has off-balance-sheet credit exposures related to unfunded loan commitments, including revolvers, delayed draw term loans and future funding commitments that are not unconditionally cancelable by the Company. The Company utilizes the same methodology in calculating the liability related to the expected credit losses on these exposures as it does for the calculation of the allowance for loan losses. In determining the estimate of credit losses for off-balance-sheet credit exposures, the Company will consider the contractual period in which the entity is exposed to credit risk and the likelihood that funding will occur, if material. Estimated credit losses for off-balance-sheet credit exposures are included in Other liabilities on the Company’s Consolidated Statements of Financial Condition.

Residential

The Company’s residential mortgage loans are primarily comprised of performing adjustable-rate and fixed-rate whole loans. The Company’s residential loans are accounted for under the fair value option with changes in fair value reflected in Net unrealized gains (losses) on instruments measured at fair value through earnings in the Statements of Comprehensive Income. Additionally, the Company consolidates a collateralized financing entity that securitized prime adjustable-rate jumbo residential mortgage loans. The Company also consolidates securitization trusts in which it had purchased subordinated securities because it also has certain powers and rights to direct the activities of such trusts. Refer to the “Variable Interest Entities” Note for further information related to the Company’s consolidated residential mortgage loan trusts.

The following table presents the fair value and the unpaid principal balances of the residential mortgage loan portfolio, including loans transferred or pledged to securitization vehicles, at June 30, 2020 and December 31, 2019:



	June 30, 2020		December 31, 2019
	(dollars in thousands)
Fair value	$	4,001,023	$	4,246,161
Unpaid principal balance	$	3,989,923	$	4,133,149

The following table provides information regarding the line items and amounts recognized in the Consolidated Statements of Comprehensive Income (Loss) for the three and six months ended June 30, 2020 and 2019 for these investments:



	For the Three Months Ended						For the Six Months Ended
	June 30, 2020			June 30, 2019			June 30, 2020			June 30, 2019
	(dollars in thousands)
Interest income	$	42,872		$	35,025		$	90,429		$	65,016
Net gains (losses) on disposal of investments and other	(5,376		)	(4,605		)	(17,376		)	(9,828		)
Net unrealized gains (losses) on instruments measured at fair value through earnings	110,545			25,891			(82,218		)	43,712
Total included in net income (loss)	$	148,041		$	56,311		$	(9,165	)	$	98,900

The following table provides the geographic concentrations based on the unpaid principal balances at June 30, 2020 and December 31, 2019 for the residential mortgage loans, including loans transferred or pledged to securitization vehicles:



Geographic Concentrations of Residential Mortgage Loans
June 30, 2020		December 31, 2019
Property location	% of Balance	Property location	% of Balance
California	51.1%	California	52.1%
New York	11.4%	New York	10.5%
Florida	5.7%	Florida	5.3%
All other (none individually greater than 5%)	31.8%	All other (none individually greater than 5%)	32.1%
Total	100.0%		100.0%

The following table provides additional data on the Company’s residential mortgage loans, including loans transferred or pledged to securitization vehicles, at June 30, 2020 and December 31, 2019:



	June 30, 2020		December 31, 2019
	Portfolio Range	Portfolio Weighted Average	Portfolio Range	Portfolio Weighted Average
	(dollars in thousands)
Unpaid principal balance	$1 - $3,448	$433	$1 - $3,448	$459
Interest rate	0.88% - 9.24%	4.90%	2.00% - 8.38%	4.94%
Maturity	7/1/2029 - 4/1/2060	4/15/2048	1/1/2028 - 12/1/2059	12/29/2047
FICO score at loan origination	505 - 829	757	505 - 829	758
Loan-to-value ratio at loan origination	8% - 105%	67%	8% - 105%	67%

At June 30, 2020 and December 31, 2019, approximately 34% and 36%, respectively, of the carrying value of the Company’s residential mortgage loans, including loans transferred or pledged to securitization vehicles, were adjustable-rate.

Commercial

The Company’s commercial real estate loans are comprised of adjustable-rate and fixed-rate loans. The difference between the principal amount of a loan and proceeds at acquisition is recorded as either a discount or premium. Commercial real estate loans and preferred equity interests that are designated as held for investment and are originated or purchased by the Company are carried at their outstanding principal balance, net of unamortized origination fees and costs, premiums or discounts, less an allowance for losses, if necessary. Origination fees and costs, premiums or discounts are amortized into interest income over the life of the loan.

Management generally reviews the most recent financial information produced by the borrower, which may include, but is not limited to, net operating income (“NOI”), debt service coverage ratios, property debt yields (net cash flow or NOI divided by the amount of outstanding indebtedness), loan per unit and rent rolls relating to each of the Company’s commercial real estate loans

and preferred equity interests (“CRE Debt and Preferred Equity Investments”), and may consider other factors management deems important. Management also reviews market pricing to determine each borrower’s ability to refinance their respective assets at the maturity of each loan, economic trends (both macro and those affecting the property specifically), and the supply and demand of competing projects in the sub-market in which each subject property is located. Management monitors the financial condition and operating results of its borrowers and continually assesses the future outlook of the borrower’s financial performance in light of industry developments, management changes and company-specific considerations.

The Company’s internal loan risk ratings are based on the guidance provided by the Office of the Comptroller of the Currency for commercial real estate lending. The Company’s internal risk rating rubric for commercial loans has nine categories as depicted below:



Risk Rating - Commercial Loans	Description
1-4 / Performing	Meets all present contractual obligations.
5 / Performing - Closely Monitored	Meets all present contractual obligations, but are transitional or could be exhibiting some weaknesses in both leverage and liquidity.
6 / Performing - Special Mention	Meets all present contractual obligations, but exhibit potential weakness that deserves management’s close attention and, if uncorrected, may result in deterioration of repayment prospects.
7 / Substandard	Inadequately protected by sound worth and paying capacity of the obligor or of the collateral pledged with a distinct possibility that loss will be sustained if some of the deficiencies are not corrected.
8 / Doubtful	Substandard loans whereby collection of all contractual principal and interest is highly questionable or improbable.
9 / Loss	Considered uncollectible.

Management assesses each loan at least quarterly and assigns an internal risk rating based on its evaluation of the most recent financial information produced by the borrower and consideration of economic conditions. See below for a tabular disclosure of the amortized cost basis of the Company’s commercial loans by year of origination and internal risk rating.

For the three months ended June 30, 2020, the Company recorded a loan loss provision on impaired collateral dependent commercial loans of $22.0 million with a principal balance and carrying value, net of allowances of $96.9 million and $57.8 million, respectively, based upon the fair value of the underlying collateral. There was no provision for loan loss recorded for the three months ended June 30, 2019. For the six months ended June 30, 2020, the Company recorded a loan loss provision on impaired collateral dependent commercial loans of $74.1 million with a principal balance and carrying value, net of allowances of $175.1 million and $95.2 million, respectively, based upon the fair value of the underlying collateral. The Company uses a discounted cash flow or market based valuation technique based upon the underlying property to project property cash flows. In projecting these cash flows, the Company reviewed the borrower financial statements, rent rolls, economic trends and other factors management deems important. These nonrecurring fair value measurements are considered to be in level three of the fair value measurement hierarchy as there are unobservable inputs, which are significant to the overall fair value.

For the six months ended June 30, 2019, the Company recorded a loan loss provision of $5.7 million on commercial loans with a principal balance and carrying value, net of allowances of $36.6 million and $30.9 million, respectively.

As a result of the implementation of the Loss given default methodology under the modified retrospective method, a cumulative effect loan loss allowance of $7.8 million was recorded on January 1, 2020. For the three and six months ended June 30, 2020, the Company recorded a loan loss allowance of $39.1 million and $62.3 million, respectively, based upon its Loss given default methodology.

At June 30, 2020 and December 31, 2019, the amortized cost basis of commercial loans on nonaccrual status was $101.0 million and $175.2 million, respectively.

At June 30, 2020 and December 31, 2019, the Company had unfunded commercial real estate loan commitments of $129.6 million and $181.4 million, respectively. At June 30, 2020, the liability related to the expected credit losses on the unfunded commercial loan commitments was $5.9 million.

At June 30, 2020 and December 31, 2019, approximately 94% and 92%, respectively, of the carrying value, net of allowances of the Company’s CRE Debt and Preferred Equity Investments, including loans transferred or pledged to securitization vehicles and excluding commercial loans held for sale, were adjustable-rate.

The sector attributes of the Company’s commercial real estate investments held for investment at June 30, 2020 and December 31, 2019 were as follows:



	Sector Dispersion
	June 30, 2020				December 31, 2019
	Carrying Value		% of Loan Portfolio		Carrying Value		% of Loan Portfolio
	(dollars in thousands)
Office	$	660,994	44.2	%	$	681,129	42.4	%
Retail	326,695		21.9	%	389,076		24.2	%
Multifamily	279,943		18.7	%	262,302		16.3	%
Hotel	116,053		7.8	%	135,681		8.4	%
Industrial	59,137		4.0	%	82,441		5.1	%
Other	31,637		2.1	%	36,589		2.3	%
Healthcare	19,045		1.3	%	18,873		1.3	%
Total	$	1,493,504	100.0	%	$	1,606,091	100.0	%

At June 30, 2020 and December 31, 2019, commercial real estate investments held for investment were comprised of the following:



	June 30, 2020						December 31, 2019
	Outstanding Principal		Carrying Value ⁽¹⁾		Percentage of Loan Portfolio ⁽²⁾		Outstanding Principal		Carrying Value ⁽¹⁾		Percentage of Loan Portfolio ⁽²⁾
	(dollars in thousands)
Senior mortgages	$	512,278	$	496,765	31.0	%	$	503,499	$	499,690	30.9	%
Senior securitized mortgages ⁽³⁾	939,951		874,618		57.0	%	940,546		936,378		57.8	%
Mezzanine loans	198,075		122,121		12.0	%	183,064		170,023		11.3	%
Total	$	1,650,304	$	1,493,504	100.0	%	$	1,627,109	$	1,606,091	100.0	%


⁽¹⁾	Carrying value includes unamortized origination fees of $6.9 million and $8.3 million at June 30, 2020 and December 31, 2019, respectively.


⁽²⁾	Based on outstanding principal.


⁽³⁾	Represents assets of consolidated VIEs.

The following tables represent a rollforward of the activity for the Company’s commercial real estate investments held for investment at June 30, 2020 and December 31, 2019:



June 30, 2020
	Senior Mortgages			Senior Securitized Mortgages ⁽¹⁾			Mezzanine Loans			Total
	(dollars in thousands)
Beginning balance (January 1, 2020)⁽²⁾	$	499,690		$	936,378		$	182,726		$	1,618,794
Originations & advances (principal)	176,077			—			12,010			188,087
Principal payments	(59,675		)	(55,719		)	—			(115,394		)
Principal write off	—			—			(7,000		)	(7,000		)
Transfers	(107,623		)	54,472			10,000			(43,151		)
Net (increase) decrease in origination fees	(812		)	—			(80		)	(892		)
Realized gain	204			—			—			204
Amortization of net origination fees	1,430			1,211			94			2,735
Allowance for loan losses
Beginning allowance, prior to CECL adoption	—			—			(12,703		)	(12,703		)
Impact of adopting CECL	(2,264		)	(4,166		)	(1,336		)	(7,766		)
Current period allowance	(10,262		)	(57,558		)	(68,590		)	(136,410		)
Write offs	—			—			7,000			7,000
Ending allowance	(12,526		)	(61,724		)	(75,629		)	(149,879		)
Net carrying value (June 30, 2020)	$	496,765		$	874,618		$	122,121		$	1,493,504



December 31, 2019
	Senior Mortgages			Senior Securitized Mortgages ⁽¹⁾			Mezzanine Loans			Total
	(dollars in thousands)
Net carrying value (January 1, 2019)	$	981,202		$	—		$	315,601		$	1,296,803
Originations & advances (principal)	572,204			—			21,709			593,913
Principal payments	(16,785		)	(150,245		)	(149,633		)	(316,663		)
Transfers	(1,034,754		)	1,083,487			(8,675		)	40,058
Net (increase) decrease in origination fees	(4,200		)	—			(184		)	(4,384		)
Amortization of net origination fees	2,023			3,136			412			5,571
Net (increase) decrease in allowance	—			—			(9,207		)	(9,207		)
Net carrying value (December 31, 2019)	$	499,690		$	936,378		$	170,023		$	1,606,091

⁽¹⁾ Represents assets of consolidated VIEs.
⁽²⁾ Excludes loan loss allowances.

The following table provides the internal loan risk ratings of commercial real estate investments held for investment as of June 30, 2020.



Amortized Cost Basis by Risk Rating and Vintage ⁽¹⁾
Risk Rating	Vintage
Risk Rating	Total		2020		2019		2018		2017		2016		Prior
(dollars in thousands)
1-4 / Performing	$	350,361	$	91,417	$	166,518	$	—	$	12,675	$	—	$	79,751
5 / Performing - Closely Monitored	264,420		—		158,806		—		39,883		65,731		—
6 / Performing - Special Mention	666,561		67,312		218,925		268,236		60,565		—		51,523
7 / Substandard	67,003		—		—		67,003		—		—		—
8 / Doubtful	145,159		—		—		37,374		107,785		—		—
9 / Loss⁽²⁾	—		—		—		—		—		—		—
Total	$	1,493,504	$	158,729	$	544,249	$	372,613	$	220,908	$	65,731	$	131,274

⁽¹⁾ The amortized cost basis excludes accrued interest. As of June 30, 2020, the Company had $4.3 million of accrued interest receivable on commercial loans which is reported in Principal and interest receivable in the Consolidated Statements of Financial Condition.

⁽²⁾ Includes two commercial mezzanine loans for which the Company recorded a full loan loss allowance of $46.6 million.

Corporate Debt

The Company’s investments in corporate loans typically take the form of senior secured loans primarily in first or second lien positions. The Company’s senior secured loans generally have stated maturities of five to seven years. In connection with these senior secured loans, the Company receives a security interest in certain assets of the borrower and such assets support repayment of such loans. Senior secured loans are generally exposed to less credit risk than more junior loans given their seniority to scheduled principal and interest and priority of security in the assets of the borrower. Interest income from coupon payments is accrued based upon the outstanding principal amounts of the debt and its contractual terms. Premiums and discounts are amortized or accreted into interest income using the effective interest method.

The Company’s internal risk rating rubric for corporate debt has nine categories as depicted below:



Risk Rating - Corporate Debt	Description
1-5 / Performing	Meets all present contractual obligations.
6 / Performing - Closely Monitored	Meets all present contractual obligations but exhibits a defined weakness in either leverage or liquidity, but not both. Loans at this rating will require closer monitoring, but where we expect no loss of interest or principal.
7 / Substandard	A loan that has a defined weakness in either leverage and/or liquidity, and which may require substantial changes to strengthen the asset. Loans at this rating level have a higher probability of loss, although no determination of the amount or timing of a loss is yet possible.
8 / Doubtful	A loan that has missed a scheduled principal or interest payment or is otherwise deemed a non-earning account. The probability of loss is increasingly certain due to significant performance issues.
9 / Loss	Considered uncollectible.

Management assesses each loan at least quarterly and assigns an internal risk rating based on its evaluation of the most recent financial information produced by the borrower and consideration of economic conditions. See below for a tabular disclosure of the amortized cost basis of the Company’s corporate debt held for investment by year of origination and internal risk rating.

For the six months ended June 30, 2020, the Company recorded a loan loss provision of $10.0 million on impaired corporate loans using a discounted cash flow methodology with a beginning principal balance and carrying value, net of allowances of $29.3 million and $4.3 million, respectively. During the six months ended June 30, 2020, a loan was restructured and the Company received $2.8 million of second lien debt and $4.8 million of equity. As a result of the restructuring, $19.6 million of first lien debt was written off and the related allowance of $11.9 million was charged off. There was no provision for loan loss recorded on corporate loans for the six months ended June 30, 2019.

As a result of the implementation of the Loss given default methodology under the modified retrospective method, a cumulative effect loan loss allowance on corporate loans of $29.7 million was recorded on January 1, 2020. For the three and six months ended June 30, 2020, the Company recorded a loan loss allowance on corporate loans of $7.6 million and $21.7 million, respectively, based upon its Loss given default methodology.

As of June 30, 2020 and December 31, 2019, the amortized cost basis of corporate loans on nonaccrual status was $0 and $12.2 million, respectively.

At June 30, 2020 and December 31, 2019, the Company had unfunded corporate loan commitments of $74.9 million and $81.2 million, respectively. At June 30, 2020, the liability related to the expected credit losses on the unfunded corporate loan commitments was $0.8 million.

The Company invests in corporate loans through its Annaly Middle Market Lending Group. The industry and rate attributes of the portfolio at June 30, 2020 and December 31, 2019 are as follows:



	Industry Dispersion
	June 30, 2020		December 31, 2019
	Total ⁽¹⁾		Total⁽¹⁾
	(dollars in thousands)
Computer Programming, Data Processing & Other Computer Related Services	$	406,827	$	394,193
Management & Public Relations Services	277,511		339,179
Industrial Inorganic Chemicals	147,622		—
Miscellaneous Business Services	122,279		164,033
Public Warehousing & Storage	116,967		107,029
Engineering, Architectural, and Surveying	110,926		124,201
Metal Cans & Shipping Containers	108,333		118,456
Offices & Clinics of Doctors of Medicine	104,000		106,993
Surgical, Medical & Dental Instruments & Supplies	99,657		102,182
Electronic Components & Accessories	77,788		24,000
Insurance Agents, Brokers and Service	70,978		75,410
Telephone Communications	57,482		61,210
Miscellaneous Health & Allied Services, not elsewhere classified	52,177		78,908
Miscellaneous Equipment Rental & Leasing	49,505		49,776
Electric Work	40,642		43,175
Medical & Dental Laboratories	35,231		41,344
Metal Forgings & Stampings	29,739		—
Research, Development & Testing Services	29,541		45,610
Home Health Care Services	28,896		29,361
Motor Vehicles and Motor Vehicle Parts & Supplies	28,415		28,815
Legal Services	27,923		—
Petroleum and Petroleum Products	24,745		24,923
Grocery Stores	22,948		23,248
Coating, Engraving and Allied Services	20,298		47,249
Schools & Educational Services, not elsewhere classified	19,331		19,586
Drugs	15,856		15,923
Chemicals & Allied Products	14,844		15,002
Machinery, Equipment & Supplies	12,419		—
Mailing, Reproduction, Commercial Art and Photography and Stenographic	12,356		14,755
Offices and Clinics of Other Health Practitioners	10,091		10,098
Miscellaneous Plastic Products	9,937		10,000
Nonferrous Foundries (Castings)	—		30,191
Total	$	2,185,264	$	2,144,850

⁽¹⁾ All middle market lending positions are floating rate.

The table below reflects the Company’s aggregate positions by their respective place in the capital structure of the borrowers at June 30, 2020 and December 31, 2019.



	June 30, 2020		December 31, 2019
	(dollars in thousands)
First lien loans	$	1,357,123	$	1,396,140
Second lien loans	828,141		748,710
Total	$	2,185,264	$	2,144,850

The following tables represent a rollforward of the activity for the Company’s corporate debt investments held for investment at June 30, 2020 and December 31, 2019:



June 30, 2020
	First Lien			Second Lien			Total
	(dollars in thousands)
Beginning balance (January 1, 2020)⁽¹⁾	$	1,403,503		$	748,710		$	2,152,213
Originations & advances	484,393			179,003			663,396
Principal payments	(247,658		)	(25,898		)	(273,556		)
Amortization & accretion of (premium) discounts	4,898			1,874			6,772
Loan restructuring	(19,550		)	2,818			(16,732		)
Sales	(248,258		)	(47,382		)	(295,640		)
Syndications	5,600			—			5,600
Allowance for loan losses							—
Beginning allowance, prior to CECL adoption	(7,363		)	—			(7,363		)
Impact of adopting CECL	(10,787		)	(18,866		)	(29,653		)
Current period allowance	(19,549		)	(12,118		)	(31,667		)
Write offs	11,894			—			11,894
Ending allowance	(25,805		)	(30,984		)	(56,789		)
Net carrying value (June 30, 2020)	$	1,357,123		$	828,141		$	2,185,264

⁽¹⁾Excludes loan loss allowances.



December 31, 2019
	First Lien			Second Lien			Total
	(dollars in thousands)
Net carrying value (January 1, 2019)	$	1,346,356		$	540,826		$	1,887,182
Originations & advances	542,463			345,573			888,036
Principal payments	(228,302		)	(140,625		)	(368,927		)
Amortization & accretion of (premium) discounts	5,960			2,936			8,896
Sales	(262,974		)	—			(262,974		)
Net (increase) decrease in allowance	(7,363		)	—			(7,363		)
Net carrying value (December 31, 2019)	$	1,396,140		$	748,710		$	2,144,850

The following table provides the amortized cost basis of corporate debt held for investment as of June 30, 2020 by vintage year and internal risk rating.



Amortized Cost Basis by Risk Rating and Vintage ⁽¹⁾
Risk Rating	Vintage
Risk Rating	Total		2020		2019		2018		2017		2016		2015		Revolvers
(dollars in thousands)
1-5 / Performing	$	1,613,987	$	275,139	$	413,306	$	503,077	$	301,941	$	72,187	$	34,048	$	14,289
6 / Performing - Closely Monitored	382,619		—		77,211		221,072		38,366		44,728		—		1,242
7 / Substandard	172,548		—		23,911		108,333		40,304		—		—		—
8 / Doubtful	16,623		—		—		12,356		4,267		—		—		—
9 / Loss	—		—		—		—		—		—		—		—
Total	$	2,185,777	$	275,139	$	514,428	$	844,838	$	384,878	$	116,915	$	34,048	$	15,531

⁽¹⁾ The amortized cost basis excludes accrued interest and costs related to unfunded loans. As of June 30, 2020, the Company had $11.4 million of accrued interest receivable on corporate loans which is reported in Principal and interest receivable in the Consolidated Statements of Financial Condition.