The Company originates and acquires first mortgage and mezzanine loans secured by commercial properties. The Company considers these loans to comprise a single portfolio of mortgage loans, and the Company has developed its systematic methodology to determine the allowance for credit losses based on a single portfolio. For purposes of certain disclosures herein, the Company disaggregates this portfolio segment into the following classes of finance receivables: Senior loans; and Subordinated and Mezzanine loans. These loans can potentially subject the Company to concentrations of credit risk as measured by various metrics, including, without limitation, property type collateralizing the loan, loan size, loans to a single sponsor and loans in a single geographic area. The Company’s loans held for investment are accounted for at amortized cost. Interest accrued but not yet collected is separately reported as accrued interest and fees receivable on the Company’s consolidated balance sheets. Amounts within that caption relating to loans held for investment were $13.9 million and $14.0 million as of June 30, 2021 and December 31, 2020.

During the three months ended June 30, 2021, the Company originated nine mortgage loans, with a total commitment of $752.5 million, an initial unpaid principal balance of $597.0 million, and unfunded commitments at closing of $155.5 million. During the six months ended June 30, 2021, the Company originated 10 mortgage loans, with a total commitment of $797.8 million, an initial unpaid principal balance of $634.5 million, and unfunded commitments at closing of $163.3 million.

The following table details overall statistics for the Company’s loan portfolio as of June 30, 2021 and December 31, 2020 (dollars in thousands):

	June 30, 2021						December 31, 2020
	Balance Sheet Portfolio			Total Loan Portfolio			Balance Sheet Portfolio			Total Loan Portfolio
Number of loans		62			63			57			58
Floating rate loans		100.0	%		100.0	%		100.0	%		100.0	%
Total loan commitment⁽¹⁾	$	5,318,297		$	5,450,297		$	4,943,511		$	5,075,511
Unpaid principal balance⁽²⁾	$	4,833,535		$	4,833,535		$	4,524,725		$	4,524,725
Unfunded loan commitments⁽³⁾	$	488,916		$	488,916		$	423,487		$	423,487
Amortized cost	$	4,825,890		$	4,825,890		$	4,516,400		$	4,516,400
Weighted average credit spread⁽⁴⁾		3.2	%		3.2	%		3.2	%		3.2	%
Weighted average all-in yield⁽⁴⁾		5.0	%		5.0	%		5.3	%		5.3	%
Weighted average term to extended maturity (in years)⁽⁵⁾		2.9			2.9			3.1			3.1

The following tables present an overview of the mortgage loan investment portfolio by loan seniority as of June 30, 2021 and December 31, 2020 (dollars in thousands):

For the six months ended June 30, 2021, loan portfolio activity was as follows (dollars in thousands):

During the three months ended June 30, 2021, the Company sold one hotel loan with an unpaid principal balance of $60.7 million for $59.5 million, resulting in a loss on sale of $1.6 million, including transaction costs of $0.4 million, before giving effect to the reduction of the general CECL reserve resulting from the related decline in loan commitments.

As of June 30, 2021 and December 31, 2020, there was $7.6 million and $8.3 million, respectively, of unamortized loan fees and discounts included in loans held for investment, net in the consolidated balance sheets. The Company did not recognize any accelerated fee component of prepayment fees during the three months ended June 30, 2021 and 2020, and recognized $0 million and $0.3 million of such payments, respectively, during the six months ended June 30, 2021 and 2020.

As of June 30, 2021 and December 31, 2020, there were no unamortized loan purchase discounts or premiums included in loans held for investment at amortized cost on the consolidated balance sheets.

As discussed in Note 2, the Company evaluates all of its loans to assign risk ratings on a quarterly basis. Based on a 5-point scale, the Company’s loans are rated “1” through “5,” from least risk to greatest risk, respectively, which ratings are described in Note 2. The Company generally assigns a risk rating of “3” to its loan investments in the origination quarter, except in specific circumstances that warrant a different risk rating based on current circumstances.

The following tables present amortized cost basis by origination year, grouped by risk rating, as of June 30, 2021 and December 31, 2020 (dollars in thousands):

	June 30, 2021
	Amortized Cost by Origination Year
	2021		2020		2019		2018		2017		Prior		Total
Senior loans by internal risk ratings:
1	$	—	$	—	$	—	$	—	$	—	$	—	$	—
2		33,345		—		—		308,404		—		—		341,749
3		598,526		253,369		1,536,789		1,089,536		337,139		23,009		3,838,368
4		—		—		316,794		46,937		216,682		—		580,413
5		—		—		—		31,200		—		—		31,200
Total mortgage loans	$	631,871	$	253,369	$	1,853,583	$	1,476,077	$	553,821	$	23,009	$	4,791,730
Subordinated and mezzanine loans by internal risk ratings:
1	$	—	$	—	$	—	$	—	$	—	$	—	$	—
2		—		—		—		—		—		—		—
3		—		—		34,160		—		—		—		34,160
4		—		—		—		—		—		—		—
5		—		—		—		—		—		—		—
Total subordinated and mezzanine loans		—		—		34,160		—		—		—		34,160
Total	$	631,871	$	253,369	$	1,887,743	$	1,476,077	$	553,821	$	23,009	$	4,825,890

	December 31, 2020
	Amortized Cost by Origination Year
	2020		2019		2018		2017		2016		Total
Senior loans by internal risk ratings:
1	$	—	$	—	$	—	$	—	$	—	$	—
2		—		—		337,738		—		—		337,738
3		247,770		1,705,783		1,099,503		255,255		—		3,308,311
4		—		433,334		46,882		301,628		25,049		806,893
5		—		—		31,106		—		—		31,106
Total mortgage loans	$	247,770	$	2,139,117	$	1,515,229	$	556,883	$	25,049	$	4,484,048
Subordinated and mezzanine loans by internal risk ratings:
1	$	—	$	—	$	—	$	—	$	—	$	—
2		—		—		—		—		—		—
3		—		32,352		—		—		—		32,352
4		—		—		—		—		—		—
5		—		—		—		—		—		—
Total subordinated and mezzanine loans		—		32,352		—		—		—		32,352
Total	$	247,770	$	2,171,469	$	1,515,229	$	556,883	$	25,049	$	4,516,400

Loans acquired rather than originated are presented in the table above in the column corresponding to the year of origination, not acquisition.

The table below summarizes the amortized cost, and results of the Company’s internal risk rating review performed as of June 30, 2021 and December 31, 2020 (dollars in thousands):

The weighted average risk rating of the Company’s loans remained unchanged at 3.1 as of June 30, 2021 and December 31, 2020.

During the three months ended June 30, 2021, the Company assigned to one of its loans originated in the current quarter a risk rating of “2” based on the continued outperformance of the underlying collateral. This loan refinanced a loan held in the Company’s loan portfolio that carried a “2” risk rating at the time it was repaid in full. Additionally, as of June 30, 2021, the Company: upgraded two hotel loans from risk category “4” to “3” due to positive economic trends in the local markets and continued improvements in property-level operating performance; upgraded four condominium loans, to the same Sponsor, from risk category “4” to “3” due to improved Sponsor financial condition, pace of conversion work, and improving market conditions; and downgraded one office loan from risk category “2” to “3” due to slowing leasing activity.

During the three months ended March 31, 2021, the Company upgraded one loan from risk category “3” to “2” because the collateral property achieved stabilized occupancy at rents in excess of underwritten rents.

The Company’s reserve developed pursuant to ASC 326 reflects its current estimate of potential credit losses related to its loan portfolio as of June 30, 2021. As part of its allowance for credit losses, the Company maintains a separate allowance for credit losses related to unfunded loan commitments, and this amount is included in accrued expenses and other liabilities on the consolidated balance sheets. For further information on the policies that govern the estimation of the allowances for credit loss, see Note 2.

The following tables present activity in the allowance for credit losses for the mortgage loan investment portfolio by class of finance receivable for the three and six months ended June 30, 2021 and 2020 (dollars in thousands):

	For the Three Months Ended June 30, 2021
	Senior Loans			Subordinated and Mezzanine Loans			Total
Allowance for credit losses for loans held for investment:
CECL reserve as of April 1, 2021	$	55,155		$	1,486		$	56,641
Credit Loss Expense (Benefit)		(3,724	)		(976	)		(4,700	)
Subtotal		51,431			510			51,941

Allowance for credit losses on unfunded loan commitments:
CECL reserve as of April 1, 2021		2,084			65			2,149
Credit Loss Expense (Benefit)		1,276			(54	)		1,222
Subtotal		3,360			11			3,371

Total allowance for credit losses	$	54,791		$	521		$	55,312

	For the Three Months Ended June 30, 2020
	Senior Loans			Subordinated and Mezzanine Loans			Total
Allowance for credit losses for loans held for investment:
CECL reserve as of April 1, 2020	$	73,620		$	2,038		$	75,658
Credit Loss Expense (Benefit)		(22,063	)		(38	)		(22,101	)
Subtotal		51,557			2,000			53,557

Allowance for credit losses on unfunded loan commitments:
CECL reserve as of April 1, 2020		5,807			1,528			7,335
Credit Loss Expense (Benefit)		(2,189	)		(28	)		(2,217	)
Subtotal		3,618			1,500			5,118

Total allowance for credit losses	$	55,175		$	3,500		$	58,675

	For the Six Months Ended June 30, 2021
	Senior Loans			Subordinated and Mezzanine Loans			Total
Allowance for credit losses for loans held for investment:
CECL reserve as of December 31, 2020	$	58,210		$	1,730		$	59,940
Credit Loss Expense (Benefit)		(6,779	)		(1,220	)		(7,999	)
Subtotal		51,431			510			51,941

Allowance for credit losses on unfunded loan commitments:
CECL reserve as of December 31, 2020		2,756			132			2,888
Credit Loss Expense (Benefit)		604			(121	)		483
Subtotal		3,360			11			3,371

Total allowance for credit losses	$	54,791		$	521		$	55,312

	For the Six Months Ended June 30, 2020
	Senior Loans		Subordinated and Mezzanine Loans		Total
Allowance for credit losses for loans held for investment:
CECL reserve as of December 31, 2019	$	—	$	—	$	—
Cumulative-effect adjustment upon adoption of ASU 2016-13		16,903		880		17,783
Credit Loss Expense (Benefit)		34,654		1,120		35,774
Subtotal		51,557		2,000		53,557

Allowance for credit losses on unfunded loan commitments:
CECL reserve as of December 31, 2019		—		—		—
Cumulative-effect adjustment upon adoption of ASU 2016-13		1,862		—		1,862
Credit Loss Expense (Benefit)		1,756		1,500		3,256
Subtotal		3,618		1,500		5,118

Total allowance for credit losses	$	55,175	$	3,500	$	58,675

The amount of allowance for credit losses is influenced by the size of the Company’s loan portfolio, loan quality, risk rating, delinquency status, historic loss experience and other conditions influencing loss expectations, such as reasonable and supportable forecasts of economic conditions. During the three months ended June 30, 2021, the Company recorded a decrease of $3.5 million to its allowance for credit losses. The decline in the Company’s allowance for credit losses was primarily due to an improving macroeconomic outlook based on recent observed economic data, improved property performance of underlying collateral for many of its loan investments that were adversely impacted by COVID-19, and normalizing commercial real estate capital markets activity. While the ultimate impact of these trends remains uncertain, the Company has selected its macroeconomic outlook based on this uncertainty, made specific forward-looking valuation adjustments to the inputs of its calculation of the allowance for credit losses to reflect variability regarding the timing, strength, and distribution of a sustained economic recovery, and unknown post-COVID levels of economic activity that may result.

During the six months ended June 30, 2021, the Company recorded a decrease of $7.5 million to its allowance for credit losses, reducing its CECL reserve to $55.3 million as of June 30, 2021. For the six months ended June 30, 2021, the Company’s estimate of expected credit losses was impacted by loan originations, sales, and repayments of $631.4 million, $60.7 million, and $339.3 million, respectively, recessionary and recovery macroeconomic assumptions employed in determining the model-based general CECL reserve, and an increase in the Company’s total loan commitments and unpaid principal balance as of June 30, 2021. For the six months ended June 30, 2020, the allowance for credit losses increased to $58.7 million, comprised of $19.6 million in connection with the adoption of ASC 326 on January 1, 2020, and $39.1 million due to changes in economic outlook resulting from the initial impact of the COVID-19 pandemic. The average risk rating of the Company’s loans remained unchanged at 3.1 as of June 30, 2021, December 31, 2020, and June 30, 2020.

One loan secured by a retail property was on non-accrual status as of June 30, 2021 and December 31, 2020 due to a default caused by non-payment of interest in December 2020. The amortized cost of the loan was $31.2 million and $31.1 million as of June 30, 2021 and December 31, 2020, respectively. In accordance with the Company’s revenue recognition policy on loans placed on non-accrual status, the Company suspended accrual of interest income on this first mortgage loan. As of June 30, 2021 and December 31, 2020, the Company determined that this first mortgage loan met the CECL framework’s criteria for individual assessment. Accordingly, the Company utilized the estimated fair value of the collateral on June 30, 2021 and December 31, 2020 to estimate a loan loss reserve of $10.0 million, which is included in the CECL reserve. The Company’s estimate of the collateral’s fair market value was determined using a discounted cash flow model and Level 3 inputs, which include estimates of property-specific cash flows over a specific holding period, a discount rate of 12.5%, and a terminal capitalization rate of 7.5%. These inputs are based on the location, type and nature of the property, current and anticipated market conditions, and management’s knowledge, experience, and judgment. With the passage of time and continuation of the COVID-19 pandemic, certain borrowers may fail to pay interest which may result in additional loans being placed on non-accrual status during later periods.

During the three months ended June 30, 2021, the Company executed two loan modifications with borrowers. As of June 30, 2021, these loans had an aggregate commitment amount of $186.9 million and an aggregate unpaid principal balance of $174.0 million. None of the loan modifications triggered the accounting requirements of a troubled debt restructuring.

During the six months ended June 30, 2021, the Company executed seven loan modifications. As of June 30, 2021, the aggregate number of loan modifications in effect was 12 with an unpaid principal balance of $1,032.9 million. All the modified loans are performing as of June 30, 2021.

Loan modifications implemented by the Company since January 1, 2021 typically involve the adjustment or waiver of property level or business plan milestones or performance tests that are prerequisite to the extension of a loan maturity in exchange for borrower concessions that may include any or all of the following: a partial repayment of principal; termination of all or a portion of the remaining unfunded loan commitment; a cash infusion by the sponsor or borrower to replenish loan reserves (interest or capital improvements); additional call protection; and an increase in the loan coupon. Loan modifications implemented by the Company in 2020 typically involved the repurposing of existing reserves to pay interest and other property-level expenses, and providing relief to conditions for extension, such as waiving debt yield tests or modifying the conditions upon which the underlying borrower may extend the maturity date. In exchange, borrowers and sponsors made partial principal repayments and/or provided additional cash for payment of interest, operating expenses, and replenishment of interest reserves or capital reserves in amounts and combinations acceptable to the Company.

The following table presents the activity in the PIK balance during the six months ended June 30, 2021 (dollars in thousands):

For the three months ended June 30, 2021, total PIK interest of $0.4 million on two loans was deferred and added to the outstanding loan principal. For the six months ended June 30, 2021, total PIK interest of $1.2 million on two loans was deferred and added to the outstanding loan principal. PIK interest on eight loans was outstanding as of June 30, 2021.

The following table presents collections of scheduled interest during the three and six months ended June 30, 2021 and 2020 and the three months ended March 31, 2021:

The following table presents the aging analysis on an amortized cost basis of mortgage loans by class of loans as of June 30, 2021 (dollars in thousands):

	Days Outstanding
	30-59 Days		60-89 Days		90 Days or More		Total Loans Past Due		Current		Total Loans		90 Days or More Past Due and Accruing
Loans Receivable:
Senior loans	$	—	$	—	$	31,200	$	31,200	$	4,760,530	$	4,791,730	$	—
Subordinated and mezzanine loans		—		—		—		—		34,160		34,160		—
Total	$	—	$	—	$	31,200	$	31,200	$	4,794,690	$	4,825,890	$	—