Our financing receivables consist of the following two portfolio segments: commercial mortgage loans and residential mortgage loans. Our commercial and residential mortgage loan portfolios are summarized in the following table. There were commitments outstanding of $106.1 million at September 30, 2020.


	September 30, 2020		December 31, 2019
	(Dollars in thousands)
Commercial mortgage loans:
Principal outstanding	$	3,778,317	$	3,458,914
Deferred fees and costs, net	(1,827)		(942)
Amortized cost	3,776,490		3,457,972
Valuation allowance	(17,429)		(9,179)
Commercial mortgage loans, carrying value	3,759,061		3,448,793

Residential mortgage loans:
Principal outstanding	171,934		—
Deferred fees and costs, net	392		—
Unamortized discounts and premiums, net	(2,838)		—
Amortized cost	169,488		—
Valuation allowance	(1,850)		—
Residential mortgage loans, carrying value	167,638		—
Mortgage loans, carrying value	$	3,926,699	$	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 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:


	September 30, 2020				December 31, 2019
	Principal		Percent		Principal		Percent
	(Dollars in thousands)
Geographic distribution
East	$	701,945	18.6	%	$	645,991	18.7	%
Middle Atlantic	284,211		7.5	%	284,597		8.2	%
Mountain	447,623		11.8	%	389,892		11.3	%
New England	24,921		0.6	%	9,152		0.3	%
Pacific	788,267		20.9	%	655,518		19.0	%
South Atlantic	781,906		20.7	%	751,199		21.7	%
West North Central	297,526		7.9	%	302,534		8.7	%
West South Central	451,918		12.0	%	420,031		12.1	%
	$	3,778,317	100.0	%	$	3,458,914	100.0	%
Property type distribution
Office	$	250,523	6.6	%	$	250,287	7.3	%
Medical Office	21,022		0.6	%	29,990		0.9	%
Retail	1,199,877		31.8	%	1,225,670		35.4	%
Industrial/Warehouse	959,819		25.4	%	896,558		25.9	%

Apartment	941,858		24.9	%	858,679		24.8	%
Agricultural	208,303		5.5	%	51,303		1.5	%
Mixed use/Other	196,915		5.2	%	146,427		4.2	%
	$	3,778,317	100.0	%	$	3,458,914	100.0	%

Our residential mortgage loan portfolio consists of loans with an outstanding principal balance of $171.9 million that have been purchased throughout 2020. 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 $14.9 million as of September 30, 2020, is included in Accrued investment income on our consolidated balance sheets.

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 or residential mortgage loan portfolio for the three and nine month periods ended September 30, 2020.

The valuation allowance for commercial mortgage loans is calculated by pooling our loans based on risk rating and property collateral type and applying an estimated loss ratio against each risk pool. Risk ratings are based on an analysis of 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 and economic outlook, among others. 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.

A commercial loan is individually evaluated for impairment if it does not continue to share similar risk characteristics of a pool. A commercial mortgage loan that is individually evaluated 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.

The valuation allowance for residential mortgage loans is estimated by deriving probability of default and recovery rate assumptions based on the characteristics of the loans in our portfolio, historical economic data and loss information, and current and forecasted economics conditions. Key loan characteristics impacting the estimate include delinquency status, time to maturity, original credit scores and loan-to-value ratios.


	Three Months Ended September 30, 2020
	Commercial		Residential		Total
	(Dollars in thousands)
Beginning allowance balance	$	(18,439)	$	(1,650)	$	(20,089)
Charge-offs	—		—		—
Recoveries	—		—		—
Change in provision for credit losses	1,010		(200)		810
Ending allowance balance	$	(17,429)	$	(1,850)	$	(19,279)

	Nine Months Ended September 30, 2020
	Commercial		Residential		Total
	(Dollars in thousands)
Beginning allowance balance (1)	$	(17,779)	$	—	$	(17,779)
Charge-offs	1,485		—		1,485
Recoveries	712		—		712
Change in provision for credit losses	(1,847)		(1,850)		(3,697)
Ending allowance balance	$	(17,429)	$	(1,850)	$	(19,279)

(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 mortgage loan valuation allowance. See Note 1 for further details.

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 and nine months ended September 30, 2020 and 2019.

We evaluate the credit quality of our commercial 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 September 30, 2020. A summary of our commercial mortgage loan 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 September 30, 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	$	337,455	62	%	$	461,926	67	%	$	422,523	61	%	$	319,071	57	%	$	374,917	54	%	$	787,122	46	%	$	2,703,014	56	%
Greater than or equal to 1.2 and less than 1.5	204,841		60	%	240,432		68	%	119,076		67	%	138,287		66	%	53,101		64	%	122,339		53	%	878,076		64	%
Greater than or equal to 1.0 and less than 1.2	6,824		66	%	54,341		57	%	2,793		72	%	7,698		65	%	—		—	%	28,700		64	%	100,356		61	%
Less than 1.0	8,785		60	%	41,674		56	%	13,100		65	%	10,247		69	%	—		—	%	21,238		56	%	95,044		59	%
Total	$	557,905	62	%	$	798,373	66	%	$	557,492	62	%	$	475,303	60	%	$	428,018	55	%	$	959,399	47	%	$	3,776,490	58	%

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


	2020		2019		2018		2017		2016		Prior		Total
As of September 30, 2020:	(Dollars in thousands)
Commercial mortgage loans
Current	$	557,905	$	798,373	$	557,492	$	475,303	$	428,018	$	959,399	$	3,776,490
30 - 59 days past due	—		—		—		—		—		—		—
60 - 89 days past due	—		—		—		—		—		—		—
Over 90 days past due	—		—		—		—		—		—		—
Total commercial mortgage loans	$	557,905	$	798,373	$	557,492	$	475,303	$	428,018	$	959,399	$	3,776,490

Residential mortgage loans
Current	$	166,171	$	—	$	—	$	—	$	—	$	—	$	166,171
30 - 59 days past due	2,546		—		—		—		—		—		2,546
60 - 89 days past due	771		—		—		—		—		—		771
Over 90 days past due	—		—		—		—		—		—		—
Total residential mortgage loans	$	169,488	$	—	$	—	$	—	$	—	$	—	$	169,488

Commercial 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 no loans in non-accrual status at September 30, 2020 and December 31, 2019. We recognized no interest income on loans in non-accrual status during the three and nine months ended September 30, 2020 and 2019.

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 or residential loans as of September 30, 2020 or December 31, 2019.

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: