XML 30 R18.htm IDEA: XBRL DOCUMENT v3.20.2
COMMERCIAL MORTGAGE LOANS
 6 Months Ended
Jun. 30, 2020
COMMERCIAL MORTGAGE LOANS [Abstract]  
COMMERCIAL MORTGAGE LOANS COMMERCIAL MORTGAGE LOANS
Commercial Mortgage Loans
The Company invests a portion of its investment portfolio in commercial mortgage loans. As of June 30, 2020, the Company’s commercial mortgage loan holdings were approximately $9.7 billion, and $9.5 billion net of allowance for credit losses. The Company has specialized in making loans on credit-oriented commercial properties, credit-anchored strip shopping centers, senior living facilities, and apartments. The Company’s underwriting procedures relative to its commercial mortgage loan portfolio are based, in the Company’s view, on a conservative and disciplined approach. The Company concentrates on a small number of commercial real estate asset classes (retail, industrial, senior living, office, and multi-family). With respect to retail, the Company’s focus is on the necessities of life sector. The Company believes that this retail focus, along with the other preferred asset classes tend to weather economic downturns better than other commercial real estate asset classes in which it has chosen not to participate. The Company believes this disciplined approach has helped to maintain a relatively low delinquency and foreclosure rate throughout its history. The majority of the Company’s commercial mortgage loan portfolio was underwritten by the Company. From time to time, the Company may acquire loans in conjunction with an acquisition.
The Company’s commercial mortgage loans are stated at unpaid principal balance, adjusted for any unamortized premium or discount, and net of the allowance for credit losses. See Note 2, Summary of Significant Accounting Policies, for a detailed discussion of the Company’s policies with respect to the measurement of the allowance for credit losses. Interest income is accrued on the principal amount of the loan based on the loan’s contractual interest rate. Amortization of premiums and discounts is recorded using the effective yield method. Interest income, amortization of premiums and discounts and prepayment fees are reported in net investment income.
Certain of the commercial mortgage loans have call options that occur within the next 10 years. However, if interest rates were to significantly increase, the Company may be unable to exercise the call options on its existing commercial mortgage loans commensurate with the significantly increased market rates. As of June 30, 2020, assuming the loans are called at their next call dates, approximately $30.5 million of principal would become due for the remainder of 2020, $717.5 million in 2021 through 2025 and $57.1 million in 2026 through 2029.
The Company offers a type of commercial mortgage loan under which the Company will permit a loan-to-value ratio of up to 85% in exchange for a participation interest in the cash flows from the underlying real estate. As of June 30, 2020 and December 31, 2019, approximately $761.4 million and $717.0 million, respectively, of the Company’s total commercial mortgage loans principal balance have this participation feature. Cash flows received as a result of this participation feature are recorded as interest income. During the three and six months ended June 30, 2020 and 2019, the Company recognized $0.5 million, $16.5 million , $12.0 million and, $14.2 million respectively, of participation commercial mortgage loan income.
As of June 30, 2020, the Company had $1.2 million invested assets that consisted of nonperforming commercial mortgage loans, restructured commercial mortgage loans, or commercial mortgage loans that were foreclosed and were converted to real estate properties. Non-performing commercial mortgage loans include loans that are greater than 90 days delinquent, or otherwise deemed uncollectible. During the six months ended June 30, 2020, the Company recognized two troubled debt restructurings as a result of granting concessions to borrowers which included loan terms unavailable from other lenders. During the three and six months ended June 30, 2020, the Company did not have any commercial mortgage loans that were foreclosed and were converted to real estate properties. It is the Company’s policy to write off loan amounts that are deemed uncollectible. No amounts were written off during the three and six months ended June 30, 2020.
As of June 30, 2019, $0.8 million of the Company’s invested assets consisted of nonperforming commercial mortgage loans, restructured commercial mortgage loans, or commercial mortgage loans that were foreclosed and were converted to real estate properties. The Company does not expect these investments to adversely affect its liquidity or ability to maintain proper matching of assets and liabilities. During the six months ended June 30, 2019, the Company recognized three troubled debt restructurings as a result of granting concessions to borrowers which included loan terms unavailable from other lenders. During the three and six months ended June 30, 2019, the Company did not have any commercial mortgage loans that were foreclosed and were converted to real estate properties. The Company did not identify any loans whose principal was permanently impaired during the three and six months ended June 30, 2019.
On March 27, 2020, H.R. 748, the Coronavirus Aid, Relief, and Economic Security Act (“the CARES Act”) was signed into legislation. Section 4013 of the CARES Act provides additional relief for certain loan modifications made as a result of the COVID-19 pandemic. Specifically, the CARES Act specifies that a financial institution may suspend the requirements under GAAP with respect to troubled debt restructuring classification and reporting for loan modifications made in response to the COVID-19 pandemic which meet the following criteria: 1) the borrower was not more than 30 days past due as of December 31, 2019 and 2) the modifications are related to arrangements that defer or delay the payment of principal or interest, or change the interest rate on the loan. The relief provided by the CARES Act terminates on the earlier of December 31, 2020 or 60 days after the end of the national emergency declared on March 13, 2020. Accordingly, the Company provided certain relief under the CARES Act under its COVID-19 Commercial Mortgage Loan Program (the “Loan Modification Program”). As of June 30, 2020, the Company had a total of 305 loans with $2.1 billion in unpaid principal balance under the Loan Modification Program. The modifications under this program include agreements to defer principal payments only or to defer principal and interest payments for a specified period of time. None of these modifications were considered troubled debt restructurings.
As of June 30, 2020, the amortized cost basis of the Company's commercial mortgage loan receivables by origination year, net of the allowance, for credit losses is as follows:
Term Loans Amortized Cost Basis by Origination Year
20202019201820172016PriorTotal
(Dollars In Thousands)
As of June 30, 2020
Commercial mortgage loans:
Performing$591,896  $2,545,699  $1,625,965  $1,368,660  $961,861  $2,624,898  $9,718,979  
Non-performing—  —  —  —  —  —  —  
Amortized cost$591,896  $2,545,699  $1,625,965  $1,368,660  $961,861  $2,624,898  $9,718,979  
 Allowance for credit losses(10,132) (36,008) (48,449) (24,083) (23,702) (30,812) (173,186) 
Total commercial mortgage loans$581,764  $2,509,691  $1,577,516  $1,344,577  $938,159  $2,594,086  $9,545,793  
The following table presents loan-to-value ratios for commercial mortgages by year of vintage:
Loan-to-Value Ratios for Commercial Mortgages by Year of Vintage
20202019201820172016PriorTotal
(Dollars In Thousands)
As of June 30, 2020
Commercial mortgage loans:
  Greater than 75%$31,134  $39,776  $106,759  $52,056  $6,648  $6,121  $242,494  
50% - 75% 467,822  1,653,459  1,030,908  1,032,967  794,766  1,400,615  6,380,537  
  Less than 50%92,940  852,464  488,298  283,637  160,447  1,218,162  3,095,948  
Amortized Cost591,896  2,545,699  $1,625,965  $1,368,660  $961,861  $2,624,898  $9,718,979  
  Allowance for credit losses(10,132) (36,008) (48,449) (24,083) (23,702) (30,812) (173,186) 
Total commercial mortgage loans$581,764  $2,509,691  $1,577,516  $1,344,577  $938,159  $2,594,086  $9,545,793  
(1) The loan-to-value ratio compares the current unpaid principal of the loan to the estimated fair value of the underlying property collateralizing the loan. Our weighted average loan-to-value ratio was 54% at both June 30, 2020 and December 31, 2019.
The following table presents debt service coverage ratios for commercial mortgages by year of vintage:
Debt Service Coverage Ratios for Commercial Mortgages by Year of Vintage
20202019201820172016PriorTotal
(Dollars In Thousands)
As of June 30, 2020
Commercial mortgage loans:
  >1.20x$567,319  $2,271,803  $1,227,831  $1,102,631  $705,564  $2,071,033  $7,946,181  
  1.00x - 1.20x24,577  272,789  295,053  212,063  196,169  372,406  1,373,057  
  <1.00x—  1,107  103,081  53,966  60,128  181,459  399,741  
Amortized Cost591,896  2,545,699  1,625,965  1,368,660  961,861  2,624,898  9,718,979  
Allowance for credit losses(10,132) (36,008) (48,449) (24,083) (23,702) (30,812) (173,186) 
Total commercial mortgage loans$581,764  $2,509,691  $1,577,516  $1,344,577  $938,159  $2,594,086  $9,545,793  
(1) The debt service coverage ratio compares a property’s net operating income to its debt service payments, including principal and interest. Our weighted average debt service coverage ratio was 1.75x at June 30, 2020 and 1.73x at December 31, 2019.
The ACL increased by $97 million during the six months ended June 30, 2020, primarily as a result of deterioration in the macroeconomic forecasts, as a result of COVID-19, used in the measurement of the ACL since the initial allowance was established.
For The
Six Months Ended
June 30, 2020
(Dollars In Thousands)
Allowance for Funded Commercial Mortgage Loan Credit Losses
Beginning balance$4,884  
Cumulative effect adjustment80,239  
Charge offs—  
Recoveries(1,839) 
Provision89,902  
Ending balance$173,186  
Allowance for Unfunded Commercial Mortgage Loan Commitments Credit Losses
Beginning balance$—  
Cumulative effect adjustment10,610  
Charge offs—  
Recoveries—  
Provision8,940  
Ending balance$19,550  
An analysis of the delinquent loans is shown in the following chart:
   Greater 
30-59 Days60-89 Daysthan 90 DaysTotal
As of June 30, 2020DelinquentDelinquentDelinquentDelinquent
 (Dollars In Thousands)
Commercial mortgage loans$2,175  $2,260  $—  $4,435  
Number of delinquent commercial mortgage loans2  1  —  3  
    
As of December 31, 2019    
Commercial mortgage loans$6,455  $—  $710  $7,165  
Number of delinquent commercial mortgage loans2  —  3  5  
The Company limits accrued interest income on loans to ninety days of interest. For loans in nonaccrual status, interest income is recognized on a cash basis. For the six months ended June 30, 2020, an immaterial amount of accrued interest was excluded from the amortized cost basis pursuant to the Company's nonaccrual policy.
An analysis of loans in a nonaccrual status is shown in the following chart:
Recorded
Investment		Unpaid
Principal
Balance		Related
Allowance		Average
Recorded
Investment		Interest
Income
Recognized		Cash Basis
Interest
Income
(Dollars In Thousands)
As of June 30, 2020
Commercial mortgage loans:      
With no related allowance recorded$—  $—  $—  $—  $—  $—  
With an allowance recorded$—  $—  $—  $—  $—  $—  
As of December 31, 2019
Commercial mortgage loans:      
With no related allowance recorded$710  $702  $—  $237  $20  $28  
With an allowance recorded$16,209  $16,102  $4,884  $3,242  $841  $838  
Commercial mortgage loans that were modified in a troubled debt restructuring as of June 30, 2020 and December 31, 2019 are shown below.
Number of
Contracts		Pre-Modification
Outstanding
Recorded
Investment		Post-Modification
Outstanding
Recorded
Investment
 (Dollars In Thousands)
As of June 30, 2020
Troubled debt restructuring:
Commercial mortgage loans1  $1,237  $1,237  
As of December 31, 2019
Troubled debt restructuring:
Commercial mortgage loans2$3,771  $3,771