XML 29 R18.htm IDEA: XBRL DOCUMENT v3.20.2
COMMERCIAL MORTGAGE LOANS
 9 Months Ended
Sep. 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 September 30, 2020, the Company’s commercial mortgage loan holdings were approximately $9.9 billion, and $9.8 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 September 30, 2020, assuming the loans are called at their next call dates, approximately $8.1 million of principal would become due for the remainder of 2020, $763.7 million in 2021 through 2025 and $56.7 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 participating interest in the cash flows from the underlying real estate. As of September 30, 2020 and December 31, 2019, approximately $805.2 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 nine months ended September 30, 2020 and 2019, the Company recognized $0.9 million, $3.8 million, $17.3 million, and $18.0 million respectively, of participation commercial mortgage loan income.
As of September 30, 2020, the Company had $1.2 million of 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. The Company does not expect these investments to adversely affect its liquidity or ability to maintain proper matching of assets and liabilities. Non-performing commercial mortgage loans include loans that are greater than 90 days delinquent, or otherwise deemed uncollectible. During the nine months ended September 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 nine months ended September 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 nine months ended September 30, 2020.
As of September 30, 2019, $3.2 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. Non-performing commercial mortgage loans include loans that are greater than 90 days delinquent, or otherwise deemed uncollectible. During the nine months ended September 30, 2019, the Company recognized four troubled debt restructurings as a result of granting concessions to borrowers which included loan terms unavailable from other lenders. During the three and nine months ended September 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 nine months ended September 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 September 30, 2020, the Company had a total of 308 loans with $2.2 billion in unpaid principal balance under the Loan Modification Program. The modifications under this program include agreements to defer principal payments only and/or to defer principal and interest payments for a specified period of time. None of these modifications were considered troubled debt restructurings.
As of September 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 September 30, 2020
Commercial mortgage loans:
Performing$937,464 $2,528,592 $1,606,876 $1,361,092 $956,593 $2,549,745 $9,940,362 
Non-performing— — — — — — — 
Amortized cost$937,464 $2,528,592 $1,606,876 $1,361,092 $956,593 $2,549,745 $9,940,362 
 Allowance for credit losses(11,139)(39,465)(43,172)(30,722)(15,789)(34,763)(175,050)
Total commercial mortgage loans$926,325 $2,489,127 $1,563,704 $1,330,370 $940,804 $2,514,982 $9,765,312 
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 September 30, 2020
Commercial mortgage loans:
  Greater than 75%$37,291 $105,608 $104,885 $51,973 $6,605 $6,122 $312,484 
50% - 75% 688,487 1,589,323 1,017,753 1,027,418 778,876 1,368,660 6,470,517 
  Less than 50%211,686 833,661 484,238 281,701 171,112 1,174,963 3,157,361 
Amortized Cost937,464 2,528,592 $1,606,876 $1,361,092 $956,593 $2,549,745 $9,940,362 
  Allowance for credit losses(11,139)(39,465)(43,172)(30,722)(15,789)(34,763)(175,050)
Total commercial mortgage loans$926,325 $2,489,127 $1,563,704 $1,330,370 $940,804 $2,514,982 $9,765,312 
(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 September 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 September 30, 2020
Commercial mortgage loans:
  >1.20x$900,073 $2,073,671 $1,202,174 $1,059,070 $725,071 $1,943,864 $7,903,923 
  1.00x - 1.20x37,391 354,960 330,495 237,527 143,886 360,784 1,465,043 
  <1.00x— 99,961 74,207 64,495 87,636 245,097 571,396 
Amortized Cost937,464 2,528,592 1,606,876 1,361,092 956,593 2,549,745 9,940,362 
Allowance for credit losses(11,139)(39,465)(43,172)(30,722)(15,789)(34,763)(175,050)
Total commercial mortgage loans$926,325 $2,489,127 $1,563,704 $1,330,370 $940,804 $2,514,982 $9,765,312 
(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 1.74x at September 30, 2020 and 1.73x at December 31, 2019.
The ACL increased by $99.1 million during the nine months ended September 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
Three Months Ended
September 30, 2020		For The
Nine Months Ended
September 30, 2020
(Dollars In Thousands)
Allowance for Funded Commercial Mortgage Loan Credit Losses
Beginning balance$173,186 $4,884 
Cumulative effect adjustment— 80,239 
Charge offs— — 
Recoveries— (1,839)
Provision1,864 91,766 
Ending balance$175,050 $175,050 
Allowance for Unfunded Commercial Mortgage Loan Commitments Credit Losses
Beginning balance$19,550 $— 
Cumulative effect adjustment— 10,610 
Charge offs— — 
Recoveries— — 
Provision247 9,187 
Ending balance$19,797 $19,797 
An analysis of delinquent loans is shown in the following chart:
   Greater 
30-59 Days60-89 Daysthan 90 DaysTotal
As of September 30, 2020DelinquentDelinquentDelinquentDelinquent
 (Dollars In Thousands)
Commercial mortgage loans$— $— $— $— 
Number of delinquent commercial mortgage loans— — — — 
    
As of December 31, 2019    
Commercial mortgage loans$6,455 $— $710 $7,165 
Number of delinquent commercial mortgage loans2 — 3 5 
The Company limits accrued interest income on loans to ninety days of interest. For loans in nonaccrual status, interest income is recognized on a cash basis. For the nine months ended September 30, 2020, an immaterial amount of accrued interest was excluded from the amortized cost basis pursuant to the Company's nonaccrual policy.
An analysis of loans in a nonaccrual status is shown in the following chart:
Recorded
Investment		Unpaid
Principal
Balance		Related
Allowance		Average
Recorded
Investment		Interest
Income
Recognized		Cash Basis
Interest
Income
(Dollars In Thousands)
As of September 30, 2020
Commercial mortgage loans:      
With no related allowance recorded$— $— $— $— $— $— 
With an allowance recorded$— $— $— $— $— $— 
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 September 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 September 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