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Mortgage Loans on Real Estate | 3 Months Ended
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Mar. 31, 2016
Mortgage Loans on Real Estate [Abstract] |
Mortgage Loans on Real Estate | Mortgage Loans on Real Estate Our mortgage loan portfolio is summarized in the following table. There were commitments outstanding of $31.7 million at March 31, 2016.
| March 31, 2016 |  | December 31, 2015
| (Dollars in thousands)
Principal outstanding | $ | 2,483,782 |  |  | $ | 2,449,909 |
Loan loss allowance | (11,750 | ) |  | (14,142 | )
Deferred prepayment fees | (597 | ) |  | (510 | )
Carrying value | $ | 2,471,435 |  |  | $ | 2,435,257 |
The portfolio consists of commercial mortgage loans collateralized by the related properties and diversified as to property type, location and loan size. Our mortgage lending policies establish limits on the amount that can be loaned to one borrower and other criteria to attempt to reduce the risk of default. The mortgage loan portfolio is summarized by geographic region and property type as follows:
| March 31, 2016 |  | December 31, 2015
| Principal |  | Percent |  | Principal |  | Percent
| (Dollars in thousands)
Geographic distribution |  |  |  |  |  |  |
East | $ | 697,469 |  |  | 28.1 | % |  | $ | 698,113 |  |  | 28.5 | %
Middle Atlantic | 158,337 |  |  | 6.4 | % |  | 160,261 |  |  | 6.6 | %
Mountain | 243,453 |  |  | 9.8 | % |  | 252,442 |  |  | 10.3 | %
New England | 13,053 |  |  | 0.5 | % |  | 13,161 |  |  | 0.5 | %
Pacific | 382,616 |  |  | 15.4 | % |  | 355,268 |  |  | 14.5 | %
South Atlantic | 470,729 |  |  | 18.9 | % |  | 456,227 |  |  | 18.6 | %
West North Central | 324,748 |  |  | 13.1 | % |  | 313,120 |  |  | 12.8 | %
West South Central | 193,377 |  |  | 7.8 | % |  | 201,317 |  |  | 8.2 | %
| $ | 2,483,782 |  |  | 100.0 | % |  | $ | 2,449,909 |  |  | 100.0 | %
Property type distribution |  |  |  |  |  |  |
Office | $ | 399,139 |  |  | 16.1 | % |  | $ | 396,154 |  |  | 16.2 | %
Medical Office | 76,686 |  |  | 3.1 | % |  | 77,438 |  |  | 3.2 | %
Retail | 773,741 |  |  | 31.1 | % |  | 790,158 |  |  | 32.2 | %
Industrial/Warehouse | 698,385 |  |  | 28.1 | % |  | 686,400 |  |  | 28.0 | %
Hotel | 3,308 |  |  | 0.1 | % |  | 3,361 |  |  | 0.1 | %
Apartment | 362,222 |  |  | 14.6 | % |  | 352,971 |  |  | 14.4 | %
Mixed use/other | 170,301 |  |  | 6.9 | % |  | 143,427 |  |  | 5.9 | %
| $ | 2,483,782 |  |  | 100.0 | % |  | $ | 2,449,909 |  |  | 100.0 | %
Our financing receivables currently consist of one portfolio segment which is our commercial mortgage loan portfolio. These are mortgage loans with collateral consisting of commercial real estate and borrowers consisting mostly of limited liability partnerships or limited liability corporations. We evaluate our mortgage loan portfolio for the establishment of a loan loss allowance by specific identification of impaired loans and the measurement of an estimated loss for each individual loan identified. A mortgage loan is impaired when it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan agreement. If we determine that the value of any specific mortgage loan is impaired, the carrying amount of the mortgage loan will be reduced to its fair value, based upon the present value of expected future cash flows from the loan discounted at the loan's effective interest rate, or the fair value of the underlying collateral less estimated costs to sell. In addition, we analyze the mortgage loan portfolio for the need of a general loan allowance for probable losses on all other loans on a quantitative and qualitative basis. The amount of the general loan allowance is based upon management's evaluation of the collectability of the loan portfolio, historical loss experience, delinquencies, credit concentrations, underwriting standards and national and local economic conditions. We rate each of the mortgage loans in our portfolio based on factors such as historical operating performance, loan to value ratio and economic outlook, among others. We calculate a loss factor to apply to each rating based on historical losses we have recognized in our mortgage loan portfolio. We apply the loss factors to the total principal outstanding within each rating category to determine an appropriate estimate of the general loan loss allowance. We also assess the portfolio qualitatively and apply a loss rate to all loans without a specific allowance based on management's assessment of economic conditions, and we apply an additional amount of loss allowance to a group of loans that we have identified as having higher risk of loss. The following table presents a rollforward of our specific and general valuation allowances for mortgage loans on real estate:
| Three Months Ended March 31, 2016 |  | Three Months Ended March 31, 2015
| Specific Allowance |  | General Allowance |  | Specific Allowance |  | General Allowance
| (Dollars in thousands)
Beginning allowance balance | $ | (7,842 | ) |  | $ | (6,300 | ) |  | $ | (12,333 | ) |  | $ | (10,300 | )
Charge-offs | — |  |  | — |  |  | 128 |  |  | — |
Recoveries | 3,340 |  |  | — |  |  | 1,255 |  |  | — |
Change in provision for credit losses | (1,248 | ) |  | 300 |  |  | (1,502 | ) |  | 3,300 |
Ending allowance balance | $ | (5,750 | ) |  | $ | (6,000 | ) |  | $ | (12,452 | ) |  | $ | (7,000 | )
The specific allowance represents the total credit loss allowances on loans which are individually evaluated for impairment. The general allowance is for the group of loans discussed above which are collectively evaluated for impairment. The following table presents the total outstanding principal of loans evaluated for impairment by basis of impairment method:
| March 31, 2016 |  | December 31, 2015
| (Dollars in thousands)
Individually evaluated for impairment | $ | 19,055 |  |  | $ | 21,277 |
Collectively evaluated for impairment | 2,464,727 |  |  | 2,428,632 |
Total loans evaluated for impairment | $ | 2,483,782 |  |  | $ | 2,449,909 |
Charge-offs include allowances that have been established on loans that were satisfied by taking ownership of the collateral. When ownership of the property is taken it is recorded at the lower of the mortgage loan's carrying value or the property's fair value (based on appraised values) less estimated costs to sell. The real estate owned is recorded as a component of other investments and the mortgage loan is recorded as fully paid, with any allowance for credit loss that has been established charged off. Fair value of the real estate is determined by third party appraisal. Recoveries are situations where we have received a payment from the borrower in an amount greater than the carrying value of the loan (principal outstanding less specific allowance). During the three months ended March 31, 2016 and 2015, no mortgage loans were satisfied by taking ownership of any real estate serving as collateral. The following table summarizes the activity in the real estate owned, included in Other investments, which was obtained in satisfaction of mortgage loans on real estate:
| Three Months Ended March 31,
| 2016 |  | 2015
| (Dollars in thousands)
Real estate owned at beginning of period | $ | 6,485 |  |  | $ | 20,238 |
Real estate acquired in satisfaction of mortgage loans | — |  |  | — |
Sales | (1,106 | ) |  | (4,899 | )
Impairments | — |  |  | (629 | )
Depreciation | (23 | ) |  | (99 | )
Real estate owned at end of period | $ | 5,356 |  |  | $ | 14,611 |
We analyze credit risk of our mortgage loans by analyzing all available evidence on loans that are delinquent and loans that are in a workout period.
| March 31, 2016 |  | December 31, 2015
| (Dollars in thousands)
Credit Exposure--By Payment Activity |  |  |
Performing | $ | 2,475,671 |  |  | $ | 2,438,341 |
In workout | 1,678 |  |  | 11,568 |
Delinquent | — |  |  | — |
Collateral dependent | 6,433 |  |  | — |
| $ | 2,483,782 |  |  | $ | 2,449,909 |
The loans that are categorized as "in workout" consist of loans that we have agreed to lower or no mortgage payments for a period of time while the borrowers address cash flow and/or operational issues. The key features of these workouts have been determined on a loan-by-loan basis. Most of these loans are in a period of low cash flow due to tenants vacating their space or tenants requesting rent relief during difficult economic periods. Generally, we have allowed the borrower a six month interest only period and in some cases a twelve month period of interest only. Interest only workout loans are expected to return to their regular debt service payments after the interest only period. Interest only loans that are not fully amortizing will have a larger balance at their balloon date than originally contracted. Fully amortizing loans that are in interest only periods will have larger debt service payments for their remaining term due to lost principal payments during the interest only period. In limited circumstances we have allowed borrowers to pay the principal portion of their loan payment into an escrow account that can be used for capital and tenant improvements for a period of not more than twelve months. In these situations new loan amortization schedules are calculated based on the principal not collected during this twelve month workout period and larger payments are collected for the remaining term of each loan. In all cases, the original interest rate and maturity date have not been modified, and we have not forgiven any principal amounts. Mortgage loans are considered delinquent when they become 60 days or more past due. In general, when loans become 90 days past due, become collateral dependent or enter a period with no debt service payments required we place them on non-accrual status and discontinue recognizing interest income. If payments are received on a delinquent loan, interest income is recognized to the extent it would have been recognized if normal principal and interest would have been received timely. If payments are received to bring a delinquent loan back to current we will resume accruing interest income on that loan. Outstanding principal of loans in a non-accrual status at March 31, 2016 and December 31, 2015 totaled $6.4 million and $0.0 million, respectively. We define collateral dependent loans as those mortgage loans for which we will depend on the value of the collateral real estate to satisfy the outstanding principal of the loan. All of our commercial mortgage loans depend on the cash flow of the borrower to be at a sufficient level to service the principal and interest payments as they come due. In general, cash inflows of the borrowers are generated by collecting monthly rent from tenants occupying space within the borrowers' properties. Our borrowers face collateral risks such as tenants going out of business, tenants struggling to make rent payments as they become due, and tenants canceling leases and moving to other locations. We have a number of loans where the real estate is occupied by a single tenant. Our borrowers sometimes face both a reduction in cash flow on their mortgage property as well as a reduction in the fair value of the real estate collateral. If borrowers are unable to replace lost rent revenue and increases in the fair value of their property do not materialize we could potentially incur more losses than what we have allowed for in our specific and general loan loss allowances. Aging of financing receivables is summarized in the following table, with loans in a "workout" period as of the reporting date considered current if payments are current in accordance with agreed upon terms:
| 30 - 59 Days |  | 60 - 89 Days |  | 90 Days and Over |  | Total Past Due |  | Current |  | Collateral Dependent Receivables |  | Total Financing Receivables
| (Dollars in thousands)
Commercial Mortgage Loans |  |  |  |  |  |  |  |  |  |  |  |  |
March 31, 2016 | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 2,477,349 |  |  | $ | 6,433 |  |  | $ | 2,483,782 |
December 31, 2015 | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 2,449,909 |  |  | $ | — |  |  | $ | 2,449,909 |
Financing receivables summarized in the following two tables represent all loans that we are either not currently collecting, or those we feel it is probable we will not collect all amounts due according to the contractual terms of the loan agreements (all loans that we have worked with the borrower to alleviate short-term cash flow issues, loans delinquent for 60 days or more at the reporting date, loans we have determined to be collateral dependent and loans that we have recorded specific impairments on that we feel may continue to have performance issues).
| Recorded Investment |  | Unpaid Principal Balance |  | Related Allowance
| (Dollars in thousands)
March 31, 2016 |  |  |  |  |
Mortgage loans with an allowance | $ | 13,305 |  |  | $ | 19,055 |  |  | $ | (5,750 | )
Mortgage loans with no related allowance | 1,678 |  |  | 1,678 |  |  | — |
| $ | 14,983 |  |  | $ | 20,733 |  |  | $ | (5,750 | )
December 31, 2015 |  |  |  |  |
Mortgage loans with an allowance | $ | 13,435 |  |  | $ | 21,277 |  |  | $ | (7,842 | )
Mortgage loans with no related allowance | 8,859 |  |  | 8,859 |  |  | — |
| $ | 22,294 |  |  | $ | 30,136 |  |  | $ | (7,842 | )
| Average Recorded Investment |  | Interest Income Recognized
| (Dollars in thousands)
Three months ended March 31, 2016 |  |  |
Mortgage loans with an allowance | $ | 13,999 |  |  | $ | 264 |
Mortgage loans with no related allowance | 1,709 |  |  | 26 |
| $ | 15,708 |  |  | $ | 290 |
Three months ended March 31, 2015 |  |  |
Mortgage loans with an allowance | $ | 19,158 |  |  | $ | 451 |
Mortgage loans with no related allowance | 13,107 |  |  | 159 |
| $ | 32,265 |  |  | $ | 610 |
A Troubled Debt Restructuring ("TDR") is a situation where we have granted a concession to a borrower for economic or legal reasons related to the borrower's financial difficulties that we would not otherwise consider. A mortgage loan that has been granted new terms, including workout terms as described previously, would be considered a TDR if it meets conditions that would indicate a borrower is experiencing financial difficulty and the new terms constitute a concession on our part. We analyze all loans where we have agreed to workout terms and all loans that we have refinanced to determine if they meet the definition of a TDR. We consider the following factors in determining whether or not a borrower is experiencing financial difficulty:
• | borrower is in default,
• | borrower has declared bankruptcy,
• | there is growing concern about the borrower's ability to continue as a going concern,
• | borrower has insufficient cash flows to service debt,
• | borrower's inability to obtain funds from other sources, and
• | there is a breach of financial covenants by the borrower.
If the borrower is determined to be in financial difficulty, we consider the following conditions to determine if the borrower was granted a concession:
• | assets used to satisfy debt are less than our recorded investment,
• | interest rate is modified,
• | maturity date extension at an interest rate less than market rate,
• | capitalization of interest,
• | delaying principal and/or interest for a period of three months or more, and
• | partial forgiveness of the balance or charge-off.
Mortgage loan workouts, refinances or restructures that are classified as TDRs are individually evaluated and measured for impairment. A summary of mortgage loans on commercial real estate with outstanding principal at March 31, 2016 and December 31, 2015 that we determined to be TDRs are as follows:
Geographic Region |  | Number of TDRs |  | Principal Balance Outstanding |  | Specific Loan Loss Allowance |  | Net Carrying Amount
|  |  |  | (Dollars in thousands)
March 31, 2016 |  |  |  |  |  |  |  |
South Atlantic |  | 5 |  | $ | 9,963 |  |  | $ | (2,992 | ) |  | $ | 6,971 |
East North Central |  | 1 |  | 2,081 |  |  | (467 | ) |  | 1,614 |
|  | 6 |  | $ | 12,044 |  |  | $ | (3,459 | ) |  | $ | 8,585 |
December 31, 2015 |  |  |  |  |  |  |  |
South Atlantic |  | 6 |  | $ | 11,155 |  |  | $ | (2,992 | ) |  | $ | 8,163 |
East North Central |  | 2 |  | 3,306 |  |  | (467 | ) |  | 2,839 |
West North Central |  | 1 |  | 5,913 |  |  | — |  |  | 5,913 |
|  | 9 |  | $ | 20,374 |  |  | $ | (3,459 | ) |  | $ | 16,915 |

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- Definition The entire disclosure for claims held for amounts due a entity, excluding financing receivables. Examples include, but are not limited to, trade accounts receivables, notes receivables, loans receivables. Includes disclosure for allowance for credit losses. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 310 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=49124121&loc=d3e5066-111524 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 210 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.5-02.3,4) -URI http://asc.fasb.org/extlink&oid=6877327&loc=d3e13212-122682 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 310 -SubTopic 10 -Section 50 -Paragraph 11 -URI http://asc.fasb.org/extlink&oid=49124121&loc=d3e5162-111524 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(k)) -URI http://asc.fasb.org/extlink&oid=26873400&loc=d3e23780-122690 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 310 -SubTopic 10 -Section 50 -Paragraph 4 -URI http://asc.fasb.org/extlink&oid=49124121&loc=d3e5074-111524 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 03 -Paragraph 7 -Article 9 + Details
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