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Mortgage Loans on Real Estate | 3 Months Ended
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Mar. 31, 2020
Receivables [Abstract] |
Mortgage Loans on Real Estate | Mortgage Loans on Real Estate Our financing receivables currently consist of one portfolio segment which is our commercial mortgage loan portfolio. Our commercial mortgage loan portfolio is summarized in the following table. There were commitments outstanding of $247.5 million at March 31, 2020.
| March 31, 2020 |  | December 31, 2019
| (Dollars in thousands)
Principal outstanding | $ | 3,689,302 |  |  | $ | 3,458,914 |
Deferred prepayment fees | (901 | ) |  | (942 | )
Amortized cost | 3,688,401 |  |  | 3,457,972 |
Valuation allowance | (19,776 | ) |  | (9,179 | )
Carrying value | $ | 3,668,625 |  |  | $ | 3,448,793 |
Our commercial mortgage loan portfolio consists of 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, 2020 |  | December 31, 2019
| Principal |  | Percent |  | Principal |  | Percent
| (Dollars in thousands)
Geographic distribution |  |  |  |  |  |  |
East | $ | 705,459 |  |  | 19.1 | % |  | $ | 645,991 |  |  | 18.7 | %
Middle Atlantic | 290,232 |  |  | 7.9 | % |  | 284,597 |  |  | 8.2 | %
Mountain | 393,338 |  |  | 10.7 | % |  | 389,892 |  |  | 11.3 | %
New England | 11,284 |  |  | 0.3 | % |  | 9,152 |  |  | 0.3 | %
Pacific | 730,262 |  |  | 19.8 | % |  | 655,518 |  |  | 19.0 | %
South Atlantic | 809,663 |  |  | 21.9 | % |  | 751,199 |  |  | 21.7 | %
West North Central | 304,069 |  |  | 8.2 | % |  | 302,534 |  |  | 8.7 | %
West South Central | 444,995 |  |  | 12.1 | % |  | 420,031 |  |  | 12.1 | %
| $ | 3,689,302 |  |  | 100.0 | % |  | $ | 3,458,914 |  |  | 100.0 | %
Property type distribution |  |  |  |  |  |  |
Office | $ | 262,446 |  |  | 7.1 | % |  | $ | 250,287 |  |  | 7.3 | %
Medical Office | 29,551 |  |  | 0.8 | % |  | 29,990 |  |  | 0.9 | %
Retail | 1,222,985 |  |  | 33.2 | % |  | 1,225,670 |  |  | 35.4 | %
Industrial/Warehouse | 938,104 |  |  | 25.4 | % |  | 896,558 |  |  | 25.9 | %
Apartment | 956,947 |  |  | 25.9 | % |  | 858,679 |  |  | 24.8 | %
Agricultural | 95,606 |  |  | 2.6 | % |  | 51,303 |  |  | 1.5 | %
Mixed use/Other | 183,663 |  |  | 5.0 | % |  | 146,427 |  |  | 4.2 | %
| $ | 3,689,302 |  |  | 100.0 | % |  | $ | 3,458,914 |  |  | 100.0 | %
Commercial mortgage loans are reported at cost, adjusted for amortization of premiums and accrual of discounts. Amortized cost excludes accrued interest receivable. Interest income is accrued on the principal amount of the loan based on the loan's contractual interest rate. Interest income is included in Net investment income on our consolidated statements of operations. Accrued interest receivable, which was $12.8 million as of March 31, 2020, is included in Accrued investment income on our consolidated balance sheets. All loans are subject to the Company's internal and external review and monitoring to assess the credit quality of our loan portfolio. We rate each of our loans based on an analysis of the current state of the borrower's credit quality. The analysis of credit quality includes a review of factors such as loan-to-value ("LTV") and debt service coverage ("DSC") ratios and economic outlook, among others. LTV and DSC ratios are the driving factors for the risk ratings which are utilized for estimating the allowance for loan losses. LTV and DSC ratios are originally calculated at the time of loan origination and are updated annually for each loan using information such as rent rolls, assessment of lease maturity dates and property operating statements, which are reviewed in the context of current leasing and in place rents compared to market leasing and market rents. A DSC ratio of less than 1.0 indicates that a property's operations do not generate sufficient income to cover debt payments. An LTV ratio in excess of 100% indicates the unpaid loan amount exceeds the value of the underlying collateral. All of our mortgage loans that have a debt service coverage ratio of less than 1.0 are performing under the original contractual loan terms at March 31, 2020. A summary of our portfolio by LTV and DSC ratios based on the most recent information collected follows (by year of origination):
| 2020 | 2019 | 2018 | 2017 | 2016 | Prior | Total
As of March 31, 2020 | Amortized Cost | Average LTV | Amortized Cost | Average LTV | Amortized Cost | Average LTV | Amortized Cost | Average LTV | Amortized Cost | Average LTV | Amortized Cost | Average LTV | Amortized Cost | Average LTV
Debt Service Coverage Ratio: | (Dollars in thousands)
Greater than or equal to 1.5 | $ | 209,636 |  | 63 | % | $ | 463,287 |  | 67 | % | $ | 411,362 |  | 61 | % | $ | 308,703 |  | 58 | % | $ | 394,953 |  | 56 | % | $ | 863,496 |  | 47 | % | $ | 2,651,437 |  | 56 | %
Greater than or equal to 1.2 and less than 1.5 | 108,167 |  | 68 | % | 299,053 |  | 69 | % | 145,090 |  | 71 | % | 159,166 |  | 66 | % | 37,411 |  | 60 | % | 138,857 |  | 54 | % | 887,744 |  | 66 | %
Greater than or equal to 1.0 and less than 1.2 | 3,600 |  | 68 | % | 36,219 |  | 61 | % | 11,056 |  | 73 | % | 15,725 |  | 65 | % | 4,017 |  | 47 | % | 45,125 |  | 60 | % | 115,742 |  | 62 | %
Less than 1.0 | — |  | — | % | 1,450 |  | 43 | % | 9,472 |  | 70 | % | — |  | — | % | — |  | — | % | 22,556 |  | 52 | % | 33,478 |  | 57 | %
Total | $ | 321,403 |  | 65 | % | $ | 800,009 |  | 68 | % | $ | 576,980 |  | 64 | % | $ | 483,594 |  | 61 | % | $ | 436,381 |  | 56 | % | $ | 1,070,034 |  | 48 | % | $ | 3,688,401 |  | 59 | %
We evaluate our commercial mortgage loan portfolio for the establishment of a loan loss allowance by specific identification of impaired loans. 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. We analyze our commercial mortgage loan portfolio for the need of a general loan allowance for expected credit losses on all other loans on a quantitative and qualitative basis by grouping assets with similar risk characteristics when there is not a specific expectation of a loss for an individual loan. 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 do not measure a credit loss allowance on accrued interest receivable as we write off any uncollectible accrued interest receivable balance to net investment income in a timely manner. We did not charge off any uncollectible accrued interest receivable on our commercial mortgage loan portfolio during the period ended March 31, 2020. Our commercial mortgage loans are pooled by risk rating and property collateral type and an estimated loss ratio is applied against each risk pool. The loss ratios are generally based upon historical loss experience for each risk pool and are adjusted for current and forecasted economic factors management believes to be relevant and supportable. Economic factors are forecasted for two years with immediate reversion to historical experience. The following table presents a rollforward of our specific and general valuation allowances for our commercial mortgage loan portfolio:
| Three Months Ended March 31, 2020 |  | Three Months Ended March 31, 2019
| Specific Allowance |  | General Allowance |  | Specific Allowance |  | General Allowance
| (Dollars in thousands)
Beginning allowance balance (1) | $ | (229 | ) |  | $ | (17,550 | ) |  | $ | (229 | ) |  | $ | (8,010 | )
Charge-offs | — |  |  | — |  |  | — |  |  | — |
Recoveries | — |  |  | — |  |  | — |  |  | — |
Change in provision for credit losses | (2,197 | ) |  | 200 |  |  | — |  |  | 60 |
Ending allowance balance | $ | (2,426 | ) |  | $ | (17,350 | ) |  | $ | (229 | ) |  | $ | (7,950 | )
(1) Upon adoption of authoritative guidance effective January 1, 2020, we updated our accounting policies and methodology for calculating the general loan loss allowance, resulting in an adjustment to our commercial mortgage loan valuation allowance. See Note 1 for further details. 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. Charge-offs include allowances that have been established on loans that were satisfied either by taking ownership of the collateral or by some other means such as discounted pay-off or loan sale. When ownership of the property is taken it is recorded at the lower of the 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 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). We did not own any real estate during the three months ended March 31, 2020 and 2019. 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, 2020 |  | December 31, 2019
| (Dollars in thousands)
Credit Exposure - By Payment Activity |  |  |
Performing | $ | 3,684,149 |  |  | $ | 3,457,972 |
In workout | — |  |  | — |
Collateral dependent | 4,252 |  |  | — |
| $ | 3,688,401 |  |  | $ | 3,457,972 |
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 are 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 allow 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. Loans that are categorized as "collateral dependent" consist of loans for which we will depend on the value of the collateral real estate to satisfy the outstanding principal of the loan. Mortgage loans are considered delinquent when they become 60 days or more past due. When loans become more than 90 days past due 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. There were no loans in non-accrual status at March 31, 2020 and December 31, 2019. We recognized no interest income on loans in non-accrual status during the three months ended March 31, 2020 and 2019. 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, 2020 | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 3,684,149 |  |  | $ | 4,252 |  |  | $ | 3,688,401 |
December 31, 2019 | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 3,457,972 |  |  | $ | — |  |  | $ | 3,457,972 |
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 is 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. There were no mortgage loans on commercial real estate that we determined to be a TDR at March 31, 2020 and December 31, 2019.

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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/2009/role/commonPracticeRef -Publisher FASB -Name Accounting Standards Codification -Topic 310 -SubTopic 10 -URI http://asc.fasb.org/subtopic&trid=2196772 + Details
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