Mortgage Loans on Real Estate

3 Months Ended

Mar. 31, 2022

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 $444.2 million at March 31, 2022.


	March 31, 2022		December 31, 2021
	(Dollars in thousands)
Commercial mortgage loans:
Principal outstanding	$	3,610,872	$	3,633,131
Deferred fees and costs, net	(4,873)		(4,629)
Amortized cost	3,605,999		3,628,502
Valuation allowance	(24,587)		(17,926)
Commercial mortgage loans, carrying value	3,581,412		3,610,576

Agricultural mortgage loans:
Principal outstanding	464,431		408,135
Deferred fees and costs, net	(1,344)		(1,136)
Amortized cost	463,087		406,999
Valuation allowance	(558)		(519)
Agricultural mortgage loans, carrying value	462,529		406,480

Residential mortgage loans:
Principal outstanding	1,669,897		1,652,910
Deferred fees and costs, net	1,432		1,468
Unamortized discounts and premiums, net	23,726		22,143
Amortized cost	1,695,055		1,676,521
Valuation allowance	(4,124)		(5,579)
Residential mortgage loans, carrying value	1,690,931		1,670,942
Mortgage loans, carrying value	$	5,734,872	$	5,687,998

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, 2022				December 31, 2021
	Principal		Percent		Principal		Percent
	(Dollars in thousands)
Geographic distribution
East	$	596,667	16.5	%	$	614,406	16.9	%
Middle Atlantic	296,015		8.2	%	293,494		8.1	%
Mountain	459,562		12.7	%	452,818		12.5	%
New England	59,996		1.7	%	60,172		1.6	%
Pacific	884,983		24.5	%	863,879		23.8	%
South Atlantic	758,905		21.0	%	785,679		21.6	%
West North Central	225,801		6.3	%	235,864		6.5	%
West South Central	328,943		9.1	%	326,819		9.0	%
	$	3,610,872	100.0	%	$	3,633,131	100.0	%
Property type distribution
Office	$	353,011	9.8	%	$	315,374	8.7	%
Medical Office	10,688		0.3	%	10,827		0.3	%
Retail	997,613		27.6	%	1,016,101		28.0	%
Industrial/Warehouse	900,747		24.9	%	924,779		25.4	%
Apartment	850,404		23.6	%	864,580		23.8	%
Hotel	285,010		7.9	%	283,500		7.8	%
Mixed Use/Other	213,399		5.9	%	217,970		6.0	%
	$	3,610,872	100.0	%	$	3,633,131	100.0	%

Our agricultural mortgage loan portfolio consists of loans with an outstanding principal balance of $464.4 million and $408.1 million as of March 31, 2022 and December 31, 2021, 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 $1.7 billion and $1.7 billion as of March 31, 2022 and December 31, 2021, 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 $35.2 million and $37.0 million as of March 31, 2022 and December 31, 2021, 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 periods ended March 31, 2022 or 2021, respectively.

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 economic 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, 2022
	Commercial		Agricultural		Residential		Total
	(Dollars in thousands)
Beginning allowance balance	$	(17,926)	$	(519)	$	(5,579)	$	(24,024)
Charge-offs	—		—		—		—
Recoveries	—		—		—		—
Change in provision for credit losses	(6,661)		(39)		1,455		(5,245)
Ending allowance balance	$	(24,587)	$	(558)	$	(4,124)	$	(29,269)

	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. There is no real estate held in Other investments as of March 31, 2022 or December 31, 2021. 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).

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, 2022 and December 31, 2021.

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, 2022 and December 31, 2021 (by year of origination):


	2022				2021				2020				2019				2018				Prior				Total
As of March 31, 2022:	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	$	78,485	64	%	$	259,927	65	%	$	421,975	59	%	$	462,591	61	%	$	344,612	57	%	$	968,571	46	%	$	2,536,161	55	%
Greater than or equal to 1.2 and less than 1.5	—		—	%	12,698		67	%	58,438		65	%	127,455		69	%	95,119		67	%	251,192		60	%	544,902		64	%
Greater than or equal to 1.0 and less than 1.2	—		—	%	320,504		45	%	17,648		82	%	69,336		72	%	2,799		44	%	47,592		58	%	457,879		52	%
Less than 1.0	12,491		60	%	—		—	%	3,240		60	%	3,614		50	%	13,948		76	%	33,764		61	%	67,057		63	%
Total	$	90,976	63	%	$	593,129	54	%	$	501,301	61	%	$	662,996	64	%	$	456,478	60	%	$	1,301,119	50	%	$	3,605,999	56	%


	2021				2020				2019				2018				2017				Prior				Total
As of December 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:
Greater than or equal to 1.5	$	260,623	64	%	$	454,828	60	%	$	464,059	61	%	$	344,170	58	%	$	246,854	52	%	$	758,494	45	%	$	2,529,028	55	%
Greater than or equal to 1.2 and less than 1.5	12,836		67	%	58,960		66	%	128,301		70	%	89,293		66	%	135,818		66	%	129,833		57	%	555,041		65	%
Greater than or equal to 1.0 and less than 1.2	318,636		45	%	17,762		82	%	69,684		72	%	11,937		75	%	6,343		60	%	42,125		58	%	466,487		53	%
Less than 1.0	—		—	%	3,289		61	%	26,147		63	%	14,051		76	%	13,385		73	%	21,074		54	%	77,946		65	%
Total	$	592,095	54	%	$	534,839	61	%	$	688,191	64	%	$	459,451	60	%	$	402,400	58	%	$	951,526	47	%	$	3,628,502	56	%

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, 2022 and December 31, 2021.

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, 2022 and December 31, 2021 (by year of origination):


	2022				2021				2020				2019				2018				Prior				Total
As of March 31, 2022:	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	$	37,099	37	%	$	62,058	53	%	$	78,431	56	%	$	11,553	48	%	$	25,000	11	%	$	—	—	%	$	214,141	46	%
Greater than or equal to 1.2 and less than 1.5	22,719		55	%	95,201		55	%	101,189		42	%	3,301		22	%	—		—	%	—		—	%	222,410		48	%
Greater than or equal to 1.0 and less than 1.2	6,925		76	%	7,357		43	%	4,064		36	%	1,434		43	%	—		—	%	—		—	%	19,780		53	%
Less than 1.0	—		—	%	—		—	%	6,756		46	%	—		—	%	—		—	%	—		—	%	6,756		46	%
Total	$	66,743	47	%	$	164,616	54	%	$	190,440	48	%	$	16,288	43	%	$	25,000	11	%	$	—	—	%	$	463,087	48	%


	2021				2020				2019				2018				2017				Prior				Total
As of December 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:
Greater than or equal to 1.5	$	62,548	54	%	$	80,919	56	%	$	11,645	49	%	$	25,000	11	%	$	—	—	%	$	—	—	%	$	180,112	49	%
Greater than or equal to 1.2 and less than 1.5	95,738		55	%	102,958		43	%	3,335		22	%	—		—	%	—		—	%	—		—	%	202,031		48	%
Greater than or equal to 1.0 and less than 1.2	7,478		44	%	4,092		36	%	4,734		50	%	—		—	%	—		—	%	—		—	%	16,304		44	%
Less than 1.0	—		—	%	8,552		59	%	—		—	%	—		—	%	—		—	%	—		—	%	8,552		59	%
Total	$	165,764	54	%	$	196,521	49	%	$	19,714	45	%	$	25,000	11	%	$	—	—	%	$	—	—	%	$	406,999	48	%

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):


	2022		2021		2020		2019		2018		Prior		Total
As of March 31, 2022:	(Dollars in thousands)
Commercial mortgage loans
Current	$	90,976	$	593,129	$	501,301	$	662,996	$	456,478	$	1,301,119	$	3,605,999
30 - 59 days past due	—		—		—		—		—		—		—
60 - 89 days past due	—		—		—		—		—		—		—
Over 90 days past due	—		—		—		—		—		—		—
Total commercial mortgage loans	$	90,976	$	593,129	$	501,301	$	662,996	$	456,478	$	1,301,119	$	3,605,999

Agricultural mortgage loans
Current	$	66,743	$	164,616	$	190,440	$	16,288	$	25,000	$	—	$	463,087
30 - 59 days past due	—		—		—		—		—		—		—
60 - 89 days past due	—		—		—		—		—		—		—
Over 90 days past due	—		—		—		—		—		—		—
Total agricultural mortgage loans	$	66,743	$	164,616	$	190,440	$	16,288	$	25,000	$	—	$	463,087

Residential mortgage loans
Current	$	172,104	$	1,002,004	$	332,075	$	48,951	$	9,669	$	572	$	1,565,375
30 - 59 days past due	47,750		12,618		14,235		14,311		—		—		88,914
60 - 89 days past due	—		21,040		5,133		101		2,029		—		28,303
Over 90 days past due	—		5,194		7,269		—		—		—		12,463
Total residential mortgage loans	$	219,854	$	1,040,856	$	358,712	$	63,363	$	11,698	$	572	$	1,695,055


	2021		2020		2019		2018		2017		Prior		Total
As of December 31, 2021:	(Dollars in thousands)
Commercial mortgage loans
Current	$	592,095	$	534,839	$	688,191	$	459,451	$	402,400	$	951,526	$	3,628,502
30 - 59 days past due	—		—		—		—		—		—		—
60 - 89 days past due	—		—		—		—		—		—		—
Over 90 days past due	—		—		—		—		—		—		—
Total commercial mortgage loans	$	592,095	$	534,839	$	688,191	$	459,451	$	402,400	$	951,526	$	3,628,502

Agricultural mortgage loans
Current	$	165,764	$	196,521	$	19,714	$	25,000	$	—	$	—	$	406,999
30 - 59 days past due	—		—		—		—		—		—		—
60 - 89 days past due	—		—		—		—		—		—		—
Over 90 days past due	—		—		—		—		—		—		—
Total agricultural mortgage loans	$	165,764	$	196,521	$	19,714	$	25,000	$	—	$	—	$	406,999

Residential mortgage loans
Current	$	1,092,438	$	454,532	$	67,380	$	16,898	$	751	$	—	$	1,631,999
30 - 59 days past due	10,284		12,363		11,373		427		—		—		34,447
60 - 89 days past due	1,838		1,090		102		—		—		—		3,030
Over 90 days past due	679		5,459		907		—		—		—		7,045
Total residential mortgage loans	$	1,105,239	$	473,444	$	79,762	$	17,325	$	751	$	—	$	1,676,521

Commercial, agricultural and residential mortgage loans are considered nonperforming when they become 90 days or more past due. When loans become nonperforming, we place them on non-accrual status and discontinue recognizing interest income. If payments are received on a nonperforming 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 nonperforming loan back to less than 90 days past due, we will resume accruing interest income on that loan. There were 34 loans in non-accrual status at March 31, 2022 and 13 loan in non-accrual status at December 31, 2021. During the three months ended March 31, 2022 and 2021 we recognized no interest income on loans which were in non-accrual status at the respective period end.

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, 2022 and December 31, 2021.