Mortgage Loans on Real Estate

3 Months Ended

Mar. 31, 2021

Our financing receivables consist of the following three portfolio segments: commercial mortgage loans, agricultural mortgage loans and residential mortgage loans. Our mortgage loan portfolios are summarized in the following table. There were commitments outstanding of $110.9 million at March 31, 2021.


	March 31, 2021		December 31, 2020
	(Dollars in thousands)
Commercial mortgage loans:
Principal outstanding	$	3,547,140	$	3,580,154
Deferred fees and costs, net	(1,213)		(1,266)
Amortized cost	3,545,927		3,578,888
Valuation allowance	(26,139)		(25,529)
Commercial mortgage loans, carrying value	3,519,788		3,553,359

Agricultural mortgage loans:
Principal outstanding	266,269		245,807
Deferred fees and costs, net	(684)		(634)
Amortized cost	265,585		245,173
Valuation allowance	(439)		(2,130)
Agricultural mortgage loans, carrying value	265,146		243,043

Residential mortgage loans:
Principal outstanding	496,135		366,320
Deferred fees and costs, net	1,323		925
Unamortized discounts and premiums, net	10,146		5,212
Amortized cost	507,604		372,457
Valuation allowance	(1,936)		(3,370)
Residential mortgage loans, carrying value	505,668		369,087
Mortgage loans, carrying value	$	4,290,602	$	4,165,489

Our commercial mortgage loan portfolio consists of loans collateralized by the related properties and diversified as to property type, location and loan size. Our 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 commercial mortgage loan portfolio is summarized by geographic region and property type as follows:


	March 31, 2021				December 31, 2020
	Principal		Percent		Principal		Percent
	(Dollars in thousands)
Geographic distribution
East	$	694,952	19.6	%	$	699,741	19.5	%
Middle Atlantic	277,420		7.8	%	281,971		7.9	%
Mountain	384,719		10.8	%	391,025		10.9	%
New England	24,624		0.7	%	24,774		0.7	%
Pacific	672,948		19.0	%	659,743		18.4	%
South Atlantic	828,593		23.4	%	832,739		23.3	%
West North Central	257,546		7.3	%	266,050		7.4	%
West South Central	406,338		11.4	%	424,111		11.9	%
	$	3,547,140	100.0	%	$	3,580,154	100.0	%
Property type distribution
Office	$	294,760	8.3	%	$	297,065	8.3	%
Medical Office	22,072		0.6	%	20,584		0.6	%
Retail	1,153,141		32.5	%	1,187,484		33.2	%
Industrial/Warehouse	945,205		26.6	%	929,325		25.9	%
Apartment	927,945		26.2	%	939,084		26.2	%
Mixed use/Other	204,017		5.8	%	206,612		5.8	%
	$	3,547,140	100.0	%	$	3,580,154	100.0	%

Our agricultural mortgage loan portfolio consists of loans with an outstanding principal balance of $266.3 million and $245.8 million as of March 31, 2021 and December 31, 2020, respectively. These loans are collateralized by agricultural land and are diversified as to location within the United States. Our residential mortgage loan portfolio consists of loans with an outstanding principal balance of $496.1 million and $366.3 million as of March 31, 2021 and December 31, 2020, respectively. These loans are collateralized by the related properties and diversified as to location within the United States.

Mortgage loans on real estate are generally reported at cost adjusted for amortization of premiums and accrual of discounts, computed using the interest method and net of valuation allowances. 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 $17.0 million and $16.6 million as of March 31, 2021 and December 31, 2020, respectively, is included in Accrued investment income on our consolidated balance sheets.

Loan Valuation Allowance

We establish a valuation allowance to provide for the risk of credit losses inherent in our mortgage loan portfolios. The valuation allowance is maintained at a level believed adequate by management to absorb estimated expected credit losses. The valuation allowance is based on amortized cost, which excludes accrued interest receivable. We do not measure a credit loss allowance on accrued interest receivable as we write off any uncollectible accrued interest receivable balances to net investment income in a timely manner. We did not charge off any uncollectible accrued interest receivable on our commercial, agricultural or residential mortgage loan portfolios for the three month period ended March 31, 2021.

The valuation allowances for each of our mortgage loan portfolios are estimated by deriving probability of default and recovery rate assumptions based on the characteristics of the loans in each portfolio, historical economic data and loss information, and current and forecasted economics conditions. Key loan characteristics impacting the estimate for our commercial mortgage loan portfolio include the current state of the borrower’s credit quality, which considers factors such as loan-to-value (“LTV”) and debt service coverage (“DSC”) ratios, loan performance, underlying collateral type, delinquency status, time to maturity, and original credit scores. Key loan characteristics impacting the estimate for our agricultural and residential mortgage loan portfolios include delinquency status, time to maturity, original credit scores and LTV ratios.

The following table represents a rollforward of the valuation allowance on our mortgage loan portfolios:











	Three Months Ended March 31, 2021
	Commercial		Agricultural		Residential		Total
	(Dollars in thousands)
Beginning allowance balance	$	(25,529)	$	(2,130)	$	(3,370)	$	(31,029)
Charge-offs	—		—		—		—
Recoveries	—		—		—		—
Change in provision for credit losses	(610)		1,691		1,434		2,515
Ending allowance balance	$	(26,139)	$	(439)	$	(1,936)	$	(28,514)

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, 2021 and 2020.

Credit Quality Indicators

We evaluate the credit quality of our commercial and agricultural mortgage loans by analyzing LTV and DSC ratios and loan performance. We evaluate the credit quality of our residential mortgage loans by analyzing loan performance.

LTV and DSC ratios for our commercial mortgage loans 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 commercial 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, 2021 and December 31, 2020.

The amortized cost of our commercial mortgage loan portfolio by LTV and DSC ratios based on the most recent information collected was as follows at March 31, 2021 and December 31, 2020 (by year of origination):


	2021				2020				2019				2018				2017				Prior				Total
As of March 31, 2021:	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	$	40,908	66	%	$	393,845	63	%	$	496,170	65	%	$	412,055	64	%	$	314,347	57	%	$	1,017,700	48	%	$	2,675,025	57	%
Greater than or equal to 1.2 and less than 1.5	13,226		69	%	130,276		67	%	212,153		70	%	94,962		73	%	123,465		67	%	162,707		57	%	736,789		66	%
Greater than or equal to 1.0 and less than 1.2	—		—	%	17,490		81	%	8,958		68	%	2,744		70	%	7,495		65	%	28,608		63	%	65,295		69	%
Less than 1.0	—		—	%	—		—	%	37,135		65	%	1,428		88	%	10,063		80	%	20,192		61	%	68,818		66	%
Total	$	54,134	67	%	$	541,611	64	%	$	754,416	66	%	$	511,189	65	%	$	455,370	60	%	$	1,229,207	50	%	$	3,545,927	59	%


	2020				2019				2018				2017				2016				Prior				Total
As of December 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:
Greater than or equal to 1.5	$	364,574	63	%	$	442,370	66	%	$	399,193	62	%	$	316,738	57	%	$	359,321	54	%	$	715,706	47	%	$	2,597,902	57	%
Greater than or equal to 1.2 and less than 1.5	161,779		66	%	226,166		70	%	124,267		72	%	124,564		67	%	52,513		62	%	111,690		55	%	800,979		66	%
Greater than or equal to 1.0 and less than 1.2	17,638		82	%	22,917		67	%	2,769		71	%	7,597		66	%	—		—	%	32,327		65	%	83,248		69	%
Less than 1.0	—		—	%	64,131		58	%	1,441		89	%	10,156		80	%	—		—	%	21,031		60	%	96,759		61	%
Total	$	543,991	65	%	$	755,584	67	%	$	527,670	64	%	$	459,055	60	%	$	411,834	55	%	$	880,754	49	%	$	3,578,888	59	%

LTV and DSC ratios for our agricultural mortgage loans are calculated at the time of loan origination and are evaluated annually for each loan using land value averages. 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 agricultural 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, 2021 and December 31, 2020.

The amortized cost of our agricultural mortgage loan portfolio by LTV and DSC ratios based on the most recent information collected was as follows at March 31, 2021 and December 31, 2020 (by year of origination):


	2021				2020				2019				2018				2017				Prior				Total
As of March 31, 2021:	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	$	12,128	39	%	$	80,175	53	%	$	11,901	49	%	$	25,000	11	%	$	—	—	%	$	—	—	%	$	129,204	43	%
Greater than or equal to 1.2 and less than 1.5	3,748		57	%	104,090		43	%	3,401		23	%	—		—	%	—		—	%	—		—	%	111,239		43	%
Greater than or equal to 1.0 and less than 1.2	7,479		44	%	4,186		37	%	4,781		50	%	—		—	%	—		—	%	—		—	%	16,446		44	%
Less than 1.0	—		—	%	8,696		60	%	—		—	%	—		—	%	—		—	%	—		—	%	8,696		60	%
Total	$	23,355	43	%	$	197,147	48	%	$	20,083	45	%	$	25,000	11	%	$	—	—	%	$	—	—	%	$	265,585	44	%


	2020				2019				2018				2017				2016				Prior				Total
As of December 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:
Greater than or equal to 1.5	$	78,631	52	%	$	13,985	47	%	$	25,000	11	%	$	—	—	%	$	—	—	%	$	—	—	%	$	117,616	43	%
Greater than or equal to 1.2 and less than 1.5	101,879		44	%	3,425		23	%	—		—	%	—		—	%	—		—	%	—		—	%	105,304		44	%
Greater than or equal to 1.0 and less than 1.2	4,213		37	%	6,573		43	%	—		—	%	—		—	%	—		—	%	—		—	%	10,786		41	%
Less than 1.0	11,467		48	%	—		—	%	—		—	%	—		—	%	—		—	%	—		—	%	11,467		48	%
Total	$	196,190	47	%	$	23,983	42	%	$	25,000	11	%	$	—	—	%	$	—	—	%	$	—	—	%	$	245,173	43	%

We closely monitor loan performance for our commercial, agricultural and residential mortgage loan portfolios. Aging of financing receivables is summarized in the following table (by year of origination):


	2021		2020		2019		2018		2017		Prior		Total
As of March 31, 2021:	(Dollars in thousands)
Commercial mortgage loans
Current	$	54,134	$	541,611	$	754,416	$	511,189	$	455,370	$	1,229,207	$	3,545,927
30 - 59 days past due	—		—		—		—		—		—		—
60 - 89 days past due	—		—		—		—		—		—		—
Over 90 days past due	—		—		—		—		—		—		—
Total commercial mortgage loans	$	54,134	$	541,611	$	754,416	$	511,189	$	455,370	$	1,229,207	$	3,545,927

Agricultural mortgage loans
Current	$	23,355	$	197,147	$	20,083	$	25,000	$	—	$	—	$	265,585
30 - 59 days past due	—		—		—		—		—		—		—
60 - 89 days past due	—		—		—		—		—		—		—
Over 90 days past due	—		—		—		—		—		—		—
Total agricultural mortgage loans	$	23,355	$	197,147	$	20,083	$	25,000	$	—	$	—	$	265,585

Residential mortgage loans
Current	$	72,910	$	275,127	$	20,406	$	—	$	—	$	—	$	368,443
30 - 59 days past due	3,600		90,607		1,981		—		—		—		96,188
60 - 89 days past due	—		37,925		2,335		—		—		—		40,260
Over 90 days past due	—		2,713		—		—		—		—		2,713
Total residential mortgage loans	$	76,510	$	406,372	$	24,722	$	—	$	—	$	—	$	507,604


	2020		2019		2018		2017		2016		Prior		Total
As of December 31, 2020:	(Dollars in thousands)
Commercial mortgage loans
Current	$	543,991	$	755,584	$	527,670	$	459,055	$	411,834	$	880,754	$	3,578,888
30 - 59 days past due	—		—		—		—		—		—		—
60 - 89 days past due	—		—		—		—		—		—		—
Over 90 days past due	—		—		—		—		—		—		—
Total commercial mortgage loans	$	543,991	$	755,584	$	527,670	$	459,055	$	411,834	$	880,754	$	3,578,888

Agricultural mortgage loans
Current	$	196,190	$	23,983	$	25,000	$	—	$	—	$	—	$	245,173
30 - 59 days past due	—		—		—		—		—		—		—
60 - 89 days past due	—		—		—		—		—		—		—
Over 90 days past due	—		—		—		—		—		—		—
Total agricultural mortgage loans	$	196,190	$	23,983	$	25,000	$	—	$	—	$	—	$	245,173

Residential mortgage loans
Current	$	321,779	$	24,951	$	—	$	—	$	—	$	—	$	346,730
30 - 59 days past due	25,150		299		—		—		—		—		25,449
60 - 89 days past due	111		—		—		—		—		—		111
Over 90 days past due	167		—		—		—		—		—		167
Total residential mortgage loans	$	347,207	$	25,250	$	—	$	—	$	—	$	—	$	372,457

Commercial, agricultural and residential mortgage loans are considered delinquent when they become 60 days or more past due. When loans become more than 90 days past due they are considered nonperforming and 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 three loans in non-accrual status at March 31, 2021 and one loan in non-accrual status at December 31, 2020. We recognized no interest income on loans in non-accrual status during the three months ended March 31, 2021 and 2020.

Collateral dependent loans consist of loans for which we will depend on the value of the collateral real estate to satisfy the outstanding principal of the loan. There were no collateral dependent commercial, agricultural or residential loans as of March 31, 2021 or December 31, 2020.

Troubled Debt Restructuring

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 that we determined to be a TDR at March 31, 2021 and December 31, 2020.