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ACRES Commercial Realty Corp. - Quarter Report: 2015 September (Form 10-Q)



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q
(Mark One)
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2015
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES    EXCHANGE ACT OF 1934

For the transition period from _________ to __________

Commission File Number: 1-32733
RESOURCE CAPITAL CORP.
(Exact name of registrant as specified in its charter)
Maryland
 
20-2287134
(State or other jurisdiction of
 
(I.R.S. Employer
incorporation or organization)
 
Identification No.)
 
 
 
712 5th Avenue, 12th Floor, New York, New York 10019
(Address of principal executive offices) (Zip code)
 
 
 
(212) 506-3870
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
þ
 
Accelerated filer
¨
Non-accelerated filer
¨
(Do not check if a smaller reporting company)
Smaller reporting company
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  ¨ Yes þ No
The number of outstanding shares of the registrant’s common stock on November 3, 2015 was 31,715,626 shares.

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RESOURCE CAPITAL CORP. AND SUBSIDIARIES
INDEX TO QUARTERLY REPORT
ON FORM 10-Q

 
 
PAGE
PART I
 
 
Item 1:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2:
 
 
 
Item 3:
 
 
 
Item 4:
 
 
 
PART II
 
 
 
 
 
Item 1:
 
 
 
Item 6:
 
 
 




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PART I
ITEM 1.    FINANCIAL STATEMENTS
RESOURCE CAPITAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
 
September 30,
2015
 
December 31,
2014
 
(unaudited)
 
 
ASSETS (1)
 
 
 
Cash and cash equivalents
$
104,735

 
$
79,905

Restricted cash
24,110

 
122,138

Investment securities, trading
25,715

 
20,786

Investment securities available-for-sale, pledged as collateral, at fair value
118,797

 
197,800

Investment securities available-for-sale, at fair value
115,803

 
77,920

Linked transactions, net at fair value
—

 
15,367

Loans held for sale ($113.0 million and $113.4 million at fair value)
116,001

 
113,675

Property held for sale
180

 
180

Loans, pledged as collateral and net of allowances of $47.3 million and $4.6 million
2,118,978

 
1,925,980

Loans receivable–related party
—

 
558

Investments in unconsolidated entities
55,858

 
59,827

Derivatives, at fair value
3,730

 
5,304

Interest receivable
13,923

 
16,260

Deferred tax asset, net
11,351

 
12,634

Principal paydown receivable
32,100

 
40,920

Direct financing leases
1,135

 
2,109

Intangible assets
25,806

 
18,610

Prepaid expenses
5,049

 
4,196

Other assets
12,771

 
14,510

Total assets
$
2,786,042

 
$
2,728,679

LIABILITIES (2)
 

 
 

Borrowings
$
1,880,891

 
$
1,716,871

Distribution payable
24,744

 
30,592

Accrued interest expense
5,437

 
2,123

Derivatives, at fair value
7,466

 
8,476

Accrued tax liability
4,697

 
9,219

Accounts payable and other liabilities
9,531

 
9,287

Total liabilities
1,932,766

 
1,776,568

EQUITY
 

 
 

Preferred stock, par value $0.001:  10,000,000 shares authorized 8.50% Series A cumulative redeemable preferred shares, liquidation preference $25.00
per share,1,069,016 and 1,069,016 shares issued and outstanding
1

 
1

Preferred stock, par value $0.001:  10,000,000 shares authorized 8.25% Series B cumulative redeemable preferred shares, liquidation preference $25.00 per share 5,740,479 and 5,601,146 shares issued and outstanding
6

 
6

Preferred stock, par value $0.001:  10,000,000 shares authorized 8.625% Series C cumulative redeemable preferred shares, liquidation preference $25.00 per share 4,800,000 and 4,800,000 shares issued and outstanding
5

 
5

Common stock, par value $0.001:  125,000,000 shares authorized; 32,370,022 and 33,243,794 shares issued and outstanding (including 694,430 and 505,910 unvested restricted shares)
32

 
33

Additional paid-in capital
1,237,198

 
1,245,345

Accumulated other comprehensive income (loss)
374

 
6,043

Distributions in excess of earnings
(394,278
)
 
(315,910
)
Total stockholders’ equity
843,338

 
935,523

Non-controlling interests
9,938

 
16,588

      Total equity
853,276

 
952,111

TOTAL LIABILITIES AND EQUITY
$
2,786,042

 
$
2,728,679


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3
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RESOURCE CAPITAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - (Continued)
(in thousands, except share and per share data)


 
September 30,
2015
 
December 31,
2014
 
(unaudited)
 
 
(1) Assets of consolidated Variable Interest Entities ("VIEs") included in the total assets above:
 
 
 
Cash and cash equivalents
$
188

 
$
25

        Restricted cash
22,206

 
121,247

        Investment securities available-for-sale, pledged as collateral, at fair value
76,517

 
119,203

        Loans held for sale
2,994

 
282

Loans, pledged as collateral and net of allowances of $43.0 million and
$3.3 million
1,566,454

 
1,261,137

        Interest receivable
7,848

 
8,941

        Prepaid expenses
194

 
221

        Principal paydown receivable
32,100

 
25,767

        Other assets
882

 
(12
)
        Total assets of consolidated VIEs
$
1,709,383

 
$
1,536,811

 
 
 
 
(2) Liabilities of consolidated VIEs included in the total liabilities above:
 
 
 
        Borrowings
$
1,189,092

 
$
1,046,494

        Accrued interest expense
953

 
1,000

        Derivatives, at fair value
4,774

 
8,439

Unsettled loan purchases
—

 
(529
)
        Accounts payable and other liabilities
208

 
(386
)
        Total liabilities of consolidated VIEs
$
1,195,027

 
$
1,055,018



The accompanying notes are an integral part of these statements
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4
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RESOURCE CAPITAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share data)
(unaudited)
 

 
For the Three Months Ended
 
For the Nine Months Ended
 
September 30,
 
September 30,
 
2015
 
2014
 
2015
 
2014
REVENUES
 
 
 
 
 
 
 
Interest income:
 
 
 
 
 
 
 
Loans
$
33,502

 
$
27,026

 
$
95,924

 
$
73,474

Securities
4,866

 
5,168

 
14,418

 
12,563

Leases
(8
)
 
—

 
250

 
—

Interest income - other
968

 
1,647

 
2,919

 
5,481

Total interest income
39,328

 
33,841

 
113,511

 
91,518

Interest expense
16,906

 
11,508

 
47,611

 
31,746

Net interest income
22,422

 
22,333

 
65,900

 
59,772

Rental income
—

 
1,118

 
—

 
7,777

Dividend income
17

 
16

 
50

 
169

Fee income
1,266

 
2,344

 
6,317

 
7,166

Total revenues
23,705

 
25,811

 
72,267

 
74,884

OPERATING EXPENSES
 

 
 

 
 

 
 

Management fees - related party
3,252

 
3,606

 
10,312

 
10,000

Equity compensation - related party
(225
)
 
798

 
1,561

 
4,497

Rental operating expense
—

 
695

 
6

 
5,168

Lease operating
(33
)
 
—

 
14

 
—

General and administrative - Corporate
4,372

 
3,716

 
13,222

 
11,305

General and administrative - PCM
6,966

 
4,631

 
20,767

 
12,196

Depreciation and amortization
628

 
562

 
1,814

 
2,158

Impairment losses
—

 
—

 
59

 
—

Provision (recovery) for loan losses
1,034

 
1,439

 
43,834

 
(1,739
)
Total operating expenses
15,994

 
15,447

 
91,589

 
43,585

 
 
 
 
 
 
 
 
 
7,711

 
10,364

 
(19,322
)
 
31,299

OTHER INCOME (EXPENSE)
 

 
 

 
 

 
 

Equity in earnings of unconsolidated subsidiaries
334

 
887

 
1,702

 
4,663

Net realized and unrealized gain (loss) on sales of investment securities available-for-sale and loans and derivatives
5,812

 
4,226

 
29,980

 
7,962

Net realized and unrealized gain (loss) on investment securities, trading
(580
)
 
376

 
1,773

 
(1,834
)
Unrealized gain (loss) and net interest income on linked transactions, net
—

 
177

 
235

 
7,494

(Loss) on reissuance/gain on extinguishment of debt
(332
)
 
(1,867
)
 
(1,403
)
 
(2,469
)
(Loss) gain on sale of real estate
(19
)
 
(69
)
 
(19
)
 
2,973

Other income (expense)
—

 
—

 
—

 
(1,262
)
Total other income (expense)
5,215

 
3,730

 
32,268

 
17,527

 
 
 
 
 
 
 
 
INCOME (LOSS) BEFORE TAXES
12,926

 
14,094

 
12,946

 
48,826

Income tax (expense) benefit
1,796

 
237

 
(2,969
)
 
667

NET INCOME (LOSS)
14,722

 
14,331

 
9,977

 
49,493

 
 
 
 
 
 
 
 

The accompanying notes are an integral part of these statements
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5
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RESOURCE CAPITAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share data)
(unaudited)
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
For the Three Months Ended
 
For the Nine Months Ended
 
September 30,
 
September 30,
 
2015
 
2014
 
2015
 
2014
Net (income) loss allocated to preferred shares
(6,115
)
 
(5,545
)
 
(18,322
)
 
(11,303
)
Net (income) loss allocable to non-controlling interest, net of taxes
(1,829
)
 
(1,458
)
 
(6,486
)
 
(1,069
)
NET INCOME (LOSS) ALLOCABLE TO COMMON SHARES
$
6,778

 
$
7,328

 
$
(14,831
)
 
$
37,121

NET INCOME (LOSS) PER COMMON SHARE – BASIC
$
0.21

 
$
0.23

 
$
(0.45
)
 
$
1.17

NET INCOME (LOSS) PER COMMON SHARE – DILUTED
$
0.21

 
$
0.22

 
$
(0.45
)
 
$
1.15

WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING - BASIC
32,515,226

 
32,413,591

 
32,726,194

 
31,858,595

WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING - DILUTED
32,951,217

 
32,806,940

 
32,726,194

 
32,176,479


The accompanying notes are an integral part of these statements
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6
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RESOURCE CAPITAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands)
(unaudited)

 
For the Three Months Ended
 
For the Nine Months Ended
 
September 30,
 
September 30,
 
2015
 
2014
 
2015
 
2014
Net income (loss)
$
14,722

 
$
14,331

 
$
9,977

 
$
49,493

Other comprehensive income (loss):
 

 
 

 
 

 
 

Reclassification adjustment for realized (gains) losses on available-for-sale securities included in net income
(1,805
)
 
3,974

 
(12,139
)
 
8,161

Unrealized gains (losses) on available-for-sale securities, net
(1,769
)
 
8,956

 
(345
)
 
7,466

Reclassification adjustments associated with unrealized gains (losses) from interest rate hedges included in net income
412

 
71

 
538

 
212

Unrealized gains on derivatives, net
1,080

 
1,160

 
3,424

 
2,351

Foreign currency translation adjustments
(86
)
 
23

 
343

 
(157
)
Total other comprehensive income (loss)
(2,168
)
 
14,184

 
(8,179
)
 
18,033

Comprehensive income (loss) before allocation to non-controlling interests and preferred shares
12,554

 
28,515

 
1,798

 
67,526

Unrealized (gains) losses on available-for-sale securities allocable to non-controlling interests
1,233

 
—

 
2,510

 
—

Net (income) loss allocable to non-controlling interests
(1,829
)
 
(1,458
)
 
(6,486
)
 
(1,069
)
Net (income) loss allocated to preferred shares
(6,115
)
 
(5,545
)
 
(18,322
)
 
(11,303
)
Comprehensive income (loss) allocable to common shares
$
5,843

 
$
21,512

 
$
(20,500
)
 
$
55,154



The accompanying notes are an integral part of these statements
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7
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RESOURCE CAPITAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2015
(in thousands, except share and per share data)
(unaudited)

 
Common Stock
 
Preferred Shares - Series A
 
Preferred Shares - Series B
 
Preferred Shares - Series C
 
Additional Paid-In Capital
 
Accumulated Other Comprehensive (Loss) Income
 
Retained Earnings
 
Distributions in Excess of Earnings
 
Total Stockholders' Equity
 
Non-Controlling Interests
 
Total Equity
 
Shares
 
Amount
 
 
 
 
 
 
 
 
 
 
Balance,
January 1, 2015
33,243,794

 
33

 
$
1

 
$
6

 
$
5

 
$
1,245,345

 
$
6,043

 
$
—

 
$
(315,910
)
 
$
935,523

 
$
16,588

 
$
952,111

Proceeds from dividend reinvestment and stock purchase plan
15,405

 
—

 
—

 
—

 
—

 
259

 
—

 
—

 
—

 
259

 
—

 
259

Proceeds from issuance of preferred stock
—

 
—

 
—

 
—

 
—

 
3,113

 
—

 
—

 
—

 
3,113

 
—

 
3,113

Offering costs
—

 
—

 
—

 
—

 
—

 
(176
)
 
—

 
—

 
—

 
(176
)
 
—

 
(176
)
Discount on 8% convertible senior notes
—

 
—

 
—

 
—

 
—

 
2,528

 
—

 
—

 
—

 
2,528

 
—

 
2,528

Stock based compensation
307,611

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Amortization of stock based compensation
—

 
—

 
—

 
—

 
—

 
1,561

 
—

 
—

 
—

 
1,561

 
—

 
1,561

Purchase and retirement of shares
(1,189,255
)
 
(1
)
 
—

 
—

 
—

 
(15,432
)
 
—

 
—

 
—

 
(15,433
)
 
—

 
(15,433
)
Forfeiture of unvested stock
(7,533
)
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Contributions from (distributions to), net non-controlling interests
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(10,626
)
 
(10,626
)
Net income
—

 
—

 
—

 
—

 
—

 
—

 
—

 
3,491

 
—

 
3,491

 
6,486

 
9,977

Preferred dividends
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(18,322
)
 
—

 
(18,322
)
 
—

 
(18,322
)
Securities available-for-sale, fair value adjustment, net
—

 
—

 
—

 
—

 
—

 
—

 
(9,974
)
 
—

 
—

 
(9,974
)
 
(2,510
)
 
(12,484
)
Designated derivatives, fair value adjustment
—

 
—

 
—

 
—

 
—

 
—

 
3,962

 
—

 
—

 
3,962

 
—

 
3,962

Foreign currency translation adjustment
—

 
—

 
—

 
—

 
—

 
—

 
343

 
—

 
—

 
343

 
—

 
343

Distributions on common stock
—

 
—

 
—

 
—

 
—

 
—

 
—

 
14,831

 
(78,368
)
 
(63,537
)
 
—

 
(63,537
)
Balance,
September 30, 2015
32,370,022

 
32

 
$
1

 
$
6

 
$
5

 
$
1,237,198

 
$
374

 
$
—

 
$
(394,278
)
 
$
843,338

 
$
9,938

 
$
853,276



The accompanying notes are an integral part of these statements
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8
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RESOURCE CAPITAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)


 
For the Nine Months Ended
 
September 30,
 
2015
 
2014
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
Net income (loss)
$
9,977

 
$
49,493

Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:
 
 
 
Provision for (recovery of) loan losses
43,834

 
(1,739
)
Depreciation, amortization, and accretion
10,122

 
2,463

Amortization of stock-based compensation
1,561

 
4,497

Amortization (accretion) of terminated derivative instruments
1,219

 
212

Amortization (accretion) of interest-only available-for-sale securities
2,768

 
(573
)
Sale (origination) of residential mortgage loans held for sale, net
(647
)
 
(42,178
)
Sale (purchase) of and principal payments on securities, trading, net
(3,120
)
 
(3,571
)
Net realized and unrealized loss (gain) on investment securities, trading
(1,773
)
 
1,834

Net realized and unrealized (gain) loss on sales of investment securities available-for-sale and loans
(29,980
)
 
(15,487
)
Loss (gain) on the reissuance (extinguishment) of debt
1,403

 
2,469

Loss (gain) on sale of real estate
19

 
(2,973
)
Settlement of derivative instruments
3,870

 
(23
)
Net impairment losses recognized in earnings
59

 
—

Unrealized gain (loss) and net interest income on linked transactions, net
(235
)
 
(5,713
)
Equity in net (earnings) losses of unconsolidated subsidiaries
(1,702
)
 
(4,663
)
Changes in operating assets and liabilities, net of acquisitions
(3,225
)
 
6,067

Net cash provided by (used in) operating activities
34,150

 
(9,885
)
 
 
 
 
CASH FLOWS FROM INVESTING ACTIVITIES:
 

 
 

(Increase) decrease in restricted cash
96,887

 
18,328

Acquisition of controlling interest in Moselle CLO S.A.
—

 
(30,433
)
Purchase of securities available-for-sale
(28,375
)
 
(145,138
)
Principal payments on securities available-for-sale
59,819

 
40,748

Proceeds from sale of securities available-for-sale
60,752

 
117,367

Return of capital from (investment in) unconsolidated entity
5,625

 
8,911

Proceeds from sale of real estate held-for-sale
47

 
31,639

Purchase and origination of loans
(629,832
)
 
(667,774
)
Principal payments received on loans
294,901

 
315,778

Improvements of investments in real estate
—

 
(225
)
Proceeds from sale of loans
108,446

 
76,314

Purchase of furniture and fixtures
(10
)
 
(69
)
Acquisition of property and equipment
—

 
(362
)
Investment in loans - related parties
—

 
(849
)
Principal payments received on loans – related parties
558

 
2,706

Settlement of derivative instruments
8,028

 
(19,245
)
Net cash (used in) provided by investing activities
(23,154
)
 
(252,304
)
 
 
 
 
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
Net proceeds from issuances of common stock and dividend reinvestment and stock purchase plan (net of offering costs of $96 and $0)
163

 
25,416

Proceeds from issuance of preferred shares (net of offering costs of $80 and $4,571)
3,033

 
152,152

Repurchase of common stock
(15,433
)
 
—

Proceeds from borrowings:
 
 
 

   Repurchase agreements, net of repayments
4,621

 
92,234

Securitizations
505,862

 
235,344

Convertible Senior Notes
99,000

 
—

Senior Secured Revolving Credit Facility
110,500

 
35,500

Reissuance of debt
16,597

 
39,635

Payments on borrowings:
 
 
 

   Securitizations
(374,778
)
 
(301,040
)
Repurchase agreements, net of borrowings
(161,645
)
 
(33,719
)
Senior Secured Revolving Credit Facility
(62,000
)
 
—

Payment of debt issuance costs
(13,235
)
 
(7,284
)
Distributions to subordinated note holders
(518
)
 
(799
)
Proceeds received from non-controlling interests
3,424

 
12,676

Distributions paid to non-controlling interests
(14,050
)
 
(1,384
)
Distributions paid on preferred stock
(18,274
)
 
(7,907
)
Distributions paid on common stock
(69,433
)
 
(77,636
)
Net cash provided by (used in) financing activities
$
13,834

 
$
163,188

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
24,830

 
(99,001
)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
79,905

 
262,270

CASH AND CASH EQUIVALENTS AT END OF PERIOD
$
104,735

 
$
163,269

SUPPLEMENTAL DISCLOSURE:
 

 
 

Interest expense paid in cash
$
33,971

 
$
26,782

Income taxes paid in cash
$
9,518

 
$
3,293


The accompanying notes are an integral part of these statements
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9
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RESOURCE CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2015
(unaudited)



NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION
Resource Capital Corp. and subsidiaries’ (collectively the ‘‘Company’’) principal business activity is to originate, purchase and manage a diversified portfolio of commercial real estate-related assets and commercial finance assets.  The Company’s investment activities are managed by Resource Capital Manager, Inc. (‘‘Manager’’) pursuant to a management agreement (the ‘‘Management Agreement’’).  The Manager is a wholly-owned indirect subsidiary of Resource America, Inc. (“Resource America”) (NASDAQ: REXI).  In September 2013, it was determined that the Company is a variable interest entity ("VIE") and that Resource America is the primary beneficiary of the Company. Therefore, the Company's financial statements are consolidated into Resource America's financial statements. The following subsidiaries are consolidated in the Company’s financial statements:
•
RCC Real Estate, Inc. (“RCC Real Estate”) holds real estate investments, including: commercial real estate loans, commercial real estate-related securities and direct investments in real estate.  RCC Real Estate owns 100% of the equity of the following VIEs:
◦
Resource Real Estate Funding CDO 2006-1, Ltd. (“RREF CDO 2006-1”), a Cayman Islands limited liability company and qualified real estate investment trust (“REIT”) subsidiary (“QRS”).  RREF CDO 2006-1 was established to complete a collateralized debt obligation (“CDO”) issuance secured by a portfolio of commercial real estate ("CRE") loans and commercial mortgage-backed securities (“CMBS”).
◦
Resource Real Estate Funding CDO 2007-1, Ltd. (“RREF CDO 2007-1”), a Cayman Islands limited liability company and QRS.  RREF CDO 2007-1 was established to complete a CDO issuance secured by a portfolio of CRE loans and CMBS.
◦
Resource Capital Corp. CRE Notes 2013, Ltd. (“RCC CRE Notes 2013”), a Cayman Islands limited liability company and QRS.  RCC CRE Notes 2013 was established to complete a CRE securitization issuance secured by a portfolio of CRE loans.
◦
Resource Capital Corp. 2014-CRE2, Ltd. (“RCC 2014-CRE2”), a Cayman Islands limited liability company and QRS. RCC 2014-CRE2 was established to complete a CRE securitization issuance secured by a portfolio of CRE loans.
◦
Resource Capital Corp. 2015-CRE3, Ltd. (“RCC 2015-CRE3”), a Cayman Islands limited liability company and QRS. RCC 2015-CRE3 was established to complete a CRE securitization issuance secured by a portfolio of CRE loans.
◦
Resource Capital Corp. 2015-CRE4, Ltd. (“RCC 2015-CRE4”), a Cayman Islands limited liability company and QRS. RCC 2015-CRE4 was established to complete a CRE securitization issuance secured by a portfolio of CRE loans.
•
RCC Commercial, Inc. (“RCC Commercial”) holds a 29.6% investment in Northport TRS, LLC (“Northport LLC”) and owns 100% of the equity of the following VIE:
◦
Apidos CDO III, Ltd. (“Apidos CDO III”), a Cayman Islands limited liability company and taxable REIT subsidiary (“TRS”).  Apidos CDO III was established to complete a CDO issuance secured by a portfolio of bank loans and asset-backed securities (“ABS”). On March 31, 2015, the Company issued a notice of redemption to Apidos CDO III's trustee to call the CDO. In June 2015, the Company liquidated Apidos CDO III and, as a result, all of the assets were sold.
•
RCC Commercial II, Inc. (“Commercial II”) holds structured notes, available-for-sale securities and investments in the subordinated notes of foreign, syndicated bank loan collateralized loan obligation ("CLO") vehicles.  Commercial II owns 100%, 68.3%, and 88.6% respectively, of the equity of the following VIEs:
◦
Apidos Cinco CDO, Ltd. (“Apidos Cinco CDO”), a Cayman Islands limited liability company and TRS.  Apidos Cinco CDO was established to complete a CDO issuance secured by a portfolio of bank loans, ABS and corporate bonds.
◦
Whitney CLO I, Ltd. ("Whitney CLO I"), a Cayman Islands limited liability company and TRS. In September 2013, the Company liquidated Whitney CLO I and, as a result, all of the assets were sold.

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10
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RESOURCE CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
SEPTEMBER 30, 2015
(unaudited)



◦
Moselle CLO S.A. ("Moselle CLO"), incorporated in Luxembourg, is a CLO issuer whose assets consisted of European senior secured loans, U.S. senior secured loans, U.S. senior unsecured loans, U.S. second lien loans, European mezzanine loans, and a limited amount of synthetic securities and other eligible debt obligations. In December 2014, the Company liquidated Moselle CLO and, as a result, substantially all of the assets were sold.
•
RCC Commercial III, Inc. (“Commercial III”) holds bank loan investments.  Commercial III owns 90% of the equity of the following VIE:
◦
Apidos CDO I, Ltd. (“Apidos CDO I”), a Cayman Islands limited liability company and TRS.  Apidos CDO I was established to complete a CDO issuance secured by a portfolio of bank loans and ABS. In October 2014, the Company liquidated Apidos CLO I, and as a result, substantially all of the assets were sold.
•
Resource TRS, Inc. (“Resource TRS”), a TRS directly owned by the Company, holds the Company’s equity investment in a leasing company and holds all of its investment securities, trading (through both direct and indirect investments in such securities). Resource TRS also owns equity in the following:
◦
Resource TRS, LLC, a Delaware limited liability company, which holds an 25.8% investment in Northport LLC.
◦
Northport LLC, a Delaware limited liability company, which holds bank loan investments and the Company's self-originated middle market loans. Resource TRS owns 44.6% of the equity in Northport LLC as of September 30, 2015. The remaining 29.6% of the equity is owned by RCC Commercial.
◦
Pelium Capital Partners, L.P., ("Pelium Capital") a Delaware limited partnership, which holds investment securities, trading. Resource TRS owns 80.2% of the equity in Pelium Capital as of September 30, 2015.
•
Resource TRS II, Inc. (“Resource TRS II”), a TRS directly owned by the Company, holds the Company’s management rights in bank loan CLOs not originated by the Company.  Resource TRS II owns 100% of the equity of the following VIE:
◦
Resource Capital Asset Management (“RCAM”), a domestic limited liability company, which is entitled to collect senior, subordinated, and incentive fees related to three CLO issuers to which it provides management services through CVC Credit Partners, L.P., formerly Apidos Capital Management ("ACM"), a subsidiary of CVC Capital Partners SICAV-FIS, S.A., a private equity firm (“CVC”).  Resource America, Inc. owns a 24% interest in CVC Credit Partners, L.P., ("CVC Credit Partners").
•
Resource TRS III, Inc. (“Resource TRS III”), a TRS directly owned by the Company, held the Company’s interests in a bank loan CDO originated by the Company.  Resource TRS III owned 33% of the equity of the following VIE:
◦
Apidos CLO VIII, Ltd (“Apidos CLO VIII”), a Cayman Islands limited liability company and TRS.  In October 2013, the Company liquidated Apidos CLO VIII, and as a result, all of the assets were sold.
•
Resource TRS IV, Inc. (“Resource TRS IV”), a TRS directly owned by the Company, held the Company's equity investment in hotel condominium units acquired in conjunction with a loan foreclosure. The hotel condominium units were sold in April 2014.
•
Resource TRS V, Inc. (“Resource TRS V”), a TRS directly owned by the Company, held the Company's equity investment in a held for sale condominium complex. All of the condominium units were sold as of December 31, 2013.
•
RSO EquityCo, LLC owned 10% of the equity of Apidos CDO I and 10% of the equity of Apidos CLO VIII.
•
Long Term Care Conversion, Inc. ("LTCC"), a TRS directly owned by the Company, is a Delaware corporation that owns 100% of the following entities:
◦
Long Term Care Conversion Funding ("LTCC Funding"), a New York limited liability company, which owns a 60.7% equity interest in Life Care Funding, LLC ("LCF") and provides funding through a financing facility to fund the acquisition of life settlement contracts. LCF, a New York limited liability company, is a joint venture between LTCC and Life Care Funding Group Partners and was established for the purpose of originating and acquiring life settlement contracts.
◦
ZWH4, LLC ("ZAIS"), a Delaware limited liability company, owns a beneficial interest in the warehouse of ZAIS CLO 4, Limited, a Cayman Islands exempted limited liability company, in equity form, that will be used to finance the purchase of syndicated bank loans.
•
RCC Residential, Inc. ("RCC Residential"), a TRS directly owned by the Company, is a Delaware corporation which owns 100% of the following entities:

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11
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RESOURCE CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
SEPTEMBER 30, 2015
(unaudited)


◦
Primary Capital Mortgage, LLC ("PCM"), (formerly known as Primary Capital Advisors, LLC), a limited liability company that originates and services residential mortgage loans.
◦
RCM Global Manager, LLC ("RCM Global Manager"), a Delaware limited liability company, owns 46.4% of the following entity:
▪
RCM Global, LLC ("RCM Global"), a Delaware limited liability company, holds a portfolio of investment securities, available-for-sale.
▪
RCC Residential Portfolio, Inc. ("RCC Resi Portfolio"), a Delaware corporation directly owned by the Company, invests in residential mortgage-backed securities (“RMBS”).
▪
RCC Residential Portfolio TRS, Inc. ("RCC Resi TRS"), a TRS directly owned by the Company, is a Delaware corporation which intends to hold strategic residential positions which cannot be held by RCC Resi Portfolio.
◦
RCC Residential Depositor, LLC ("RCC Resi Depositor"), a Delaware limited liability company, owns 100% of the following entity:
▪
RCC Residential Acquisition, LLC ("RCC Resi Acquisition"), a Delaware limited liability company, purchases residential mortgage loans from PCM and transfers the assets to RCC Opp Trust.
*
RCC Opportunities Trust ("RCC Opp Trust"), a Delaware statutory trust, holds a portfolio of residential mortgage loans, available-for-sale.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Reverse Stock Split and Amended and Restated Certificate of Incorporation
Effective August 31, 2015, the Company completed a one-for-four reverse stock split of its outstanding common stock. The accompanying financial statements and notes to the financial statements give retroactive effect to the reverse stock split for all periods presented. In addition, the Company adopted an Amended and Restated Certificate of Incorporation, which provides that our authorized capital stock consists of 125,000,000 shares of common stock, $0.001 par value per share, and 100,000,000 shares of preferred stock, $0.001 par value per share.
Principles of Consolidation
The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). The consolidated financial statements include the accounts of the Company.
All inter-company transactions and balances have been eliminated.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand and all highly liquid investments with original maturities of three months or less at the time of purchase. At September 30, 2015 and December 31, 2014, the reported cash balances of $104.7 million and $79.9 million exceeded the Federal Deposit Insurance Corporation deposit insurance limit of $250,000 per institution, subjecting the Company to risk related to the uninsured balance. All of the Company's cash deposits are held at large, established financial institutions. 
Investment in Unconsolidated Entities
The Company's non-controlling investments in unconsolidated entities are included in investments in unconsolidated entities on the balance sheet and may be accounted for under the equity method or the cost method.
Under the equity method, capital contributions, distributions, profits and losses of the entities are allocated in accordance with the terms of the entities' operating agreements. Such allocations may differ from the stated percentage interests, if any, as a result of preferred returns and allocation formulas as described in the entities' operating agreements.
The Company may account for an investment that does not qualify for equity method accounting using the cost method if the Company determines the investment in the unconsolidated investment is insignificant. Under the cost method, the Company records dividend income when declared to the extent it is not considered a return of capital, which is recorded as a reduction of the cost of the investment.

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12
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RESOURCE CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
SEPTEMBER 30, 2015
(unaudited)


Recent Accounting Standards
In September 2015, the Financial Accounting Standards Board ("FASB") issued guidance that simplifies the accounting for adjustments made to provisional amounts recognized in a business combination, which are currently recognized on a retrospective basis. Under the new requirements, adjustments to provisional amounts will be recognized in the reporting period in which the adjustments are determined. The effects of changes in depreciation, amortization, or other income arising from changes to the provisional amounts, if any, are included in earnings of the reporting period in which the adjustments to the provisional amounts are determined. An entity is also required to present separately on the face of the income statement or disclose in the notes the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. It is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2015, but early adoption is permitted. The Company is currently evaluating the effect of adoption.    
In April 2015, the FASB issued guidance that simplifies the presentation of debt issuance costs by requiring that debt issuance costs be presented in the balance sheet as a deduction from the carrying amount of the related debt liability, consistent with debt discounts or premiums. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this update. It is effective for annual reporting periods beginning after December 15, 2015, but early adoption is permitted. The Company has early adopted the provisions of this guidance. Note 12, Borrowings, reflects the presentation of debt issuance costs as prescribed by this accounting standards update. Adoption did not have a material impact on the Company's consolidated financial statements.
In February 2015, the FASB issued guidance that requires an entity to evaluate whether it should consolidate certain legal entities. All legal entities are subject to reevaluation under the revised consolidation model. Specifically, the amendments: (1) modify the evaluation of whether limited partnerships and similar legal entities are variable interest entities ("VIEs") or voting interest entities; (2) eliminate the presumption that a general partner should consolidate a limited partnership; (3) affect the consolidation analysis of reporting entities that are involved with VIEs, particularly those that have fee arrangements and related-party relationships; and (4) provide a scope exception from consolidation guidance for reporting entities with interests in legal entities that are required to comply with or operate in accordance with requirements that are similar to those in Rule 2a-7 of the Investment Company Act of 1940 for registered money market funds. This guidance is effective for public business entities for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015. Early application is permitted. The Company is currently evaluating the effect of adoption.    
In November 2014, the FASB issued guidance to eliminate the use of different methods in practice and thereby reduce existing diversity under GAAP in the accounting for hybrid financial instruments issued in the form of shares. An entity that issues or invests in a hybrid financial instrument is required to separate an embedded derivative feature from the host contract (for example, an underlying share) and account for the feature as a derivative according to Accounting Standards Codification ("ASC") Subtopic 815-10 on derivatives and hedging if certain criteria are met. This guidance is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2015. Early adoption is permitted. The Company is currently evaluating the effect of adoption.
In August 2014, the FASB issued guidance that clarifies the disclosures management must make in its interim and annual financial statement footnotes when management has determined that conditions exist that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date the financial statements are issued (or within one year after the date the financial statements are available to be issued when applicable). In accordance with this guidance, management’s assessment is required to be made each reporting period and should be based on relevant conditions and events that are known and reasonably knowable at the date the financial statements are issued. In all cases, to the extent that substantial doubt about the entity’s ability to continue as a going concern is determined to be probable, management must disclose the principal conditions or events that gave rise to the substantial doubt about the entity’s ability to continue as a going concern, management’s evaluation of the significance of those conditions or events in relation to the entity’s ability to meet its obligations, and management’s plans that either alleviate or are intended to mitigate the conditions or events that gave rise to the substantial doubt about the entity’s ability to continue as a going concern. Additionally, to the extent substantial doubt about the entity’s ability to continue as a going concern is not alleviated by management’s plans, management must indicate in the footnotes that there is substantial doubt about the entity’s ability to continue as a going concern. This guidance is effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. Early adoption is permitted. The Company does not expect adoption will have a material impact on its consolidated financial statements.

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13
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RESOURCE CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
SEPTEMBER 30, 2015
(unaudited)


In August 2014, the FASB issued guidance that provides for the election of a measurement alternative when a reporting entity determines that it is the primary beneficiary of a collateralized financing entity and, hence, is required to consolidate that collateralized financing entity. The measurement alternative allows a qualifying consolidated collateralized financing entity to use the more observable of the fair value of the financial assets or the fair value of the financial liabilities adjusted by the carrying amount of non-financial assets and the fair value of any beneficial interests retained by the reporting entity (including those beneficial interests that represent compensation for services). Alternatively, if the measurement alternative is not elected for a qualifying consolidated collateralized financing entity, this guidance requires that the financial assets and financial liabilities be measured in accordance with ASC Topic 820, and that any difference in the fair value of the financial assets and the fair value of the financial liabilities be reflected in earnings and attributed to the reporting entity in the consolidated statement of operations. This guidance is effective for public business entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2015. Early adoption is permitted as of the beginning of an annual period. The Company is currently evaluating the effect of adoption.
In June 2014, the FASB issued guidance that changes the accounting for repurchase-to-maturity transactions to secured borrowing accounting and requires separate accounting for a transfer of a financial asset executed contemporaneously with a repurchase agreement with the same counterparty, which results in secured borrowing accounting for the repurchase arrangements. This amendment also requires additional disclosure for certain transactions comprising a transfer of a financial asset accounted for as a sale and an agreement with the same transferee entered into in contemplation of the initial transfer that results in the transferor retaining substantially all of the exposure to the economic return on the transferred financial asset throughout the term of the transaction. The Company adopted this accounting standards update on January 1, 2015. Upon adoption, the Company unlinked its previously linked transactions and disclosed affected asset, liability, income and expense balances at their gross values in its consolidated financial statements.
In April 2014, the FASB issued guidance that changes the requirements for reporting discontinued operations. The amendments in this update require an entity to present, for each comparative period, the assets and liabilities of a disposal group that includes a discontinued operation separately in the asset and liability sections of the statement of financial position. The amendments in this update also require additional disclosures about discontinued operations and new disclosures for disposal transactions of individually significant components of an entity that do not meet the definition of a discontinued operation. Additionally, this guidance both permits and expands the disclosures about an entity’s significant continuing involvement with a discontinued operation. This guidance is effective for all disposals, or classifications of assets as held for sale, of components of an entity that occur within annual periods beginning on or after December 15, 2014, and interim periods within those years. Early adoption was permitted for disposals that had not been reported in financial statements previously issued or available for issuance. The Company early adopted the provisions of this guidance. Adoption did not have a material impact on the Company's consolidated financial statements.
In January 2014, the FASB issued guidance that clarifies when a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan. Furthermore, the guidance requires interim and annual disclosure of the amount of foreclosed residential real estate property held by the creditor and the recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure according to local requirements of the applicable jurisdiction. This guidance was effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2014. Adoption did not have a material impact on the Company's consolidated financial statements.
Reclassifications
Certain reclassifications have been made to the 2014 consolidated financial statements to conform to the 2015 presentation.

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14
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RESOURCE CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
SEPTEMBER 30, 2015
(unaudited)


NOTE 3 - VARIABLE INTEREST ENTITIES

The Company has evaluated its securities, loans, investments in unconsolidated entities, liabilities to subsidiary trusts issuing preferred securities (consisting of unsecured junior subordinated notes) and its securitizations in order to determine if they are variable interests in VIEs. The Company monitors these legal interests and, to the extent it has determined that it has a variable interest, analyzes the entity for potential consolidation. A VIE is required to be consolidated by its primary beneficiary, which, generally, is the entity that has the power to direct the activities that are most significant to the VIE and the right to receive benefits or the obligation to absorb losses that could potentially be significant to the VIE. The Company continuously analyzes entities in which it holds variable interests, including when there is a reconsideration event, to determine whether such entities are VIEs and whether such potential VIEs should be consolidated or deconsolidated. This analysis requires considerable judgment in determining the primary beneficiary of a VIE and could result in the consolidation of an entity that would otherwise not have been consolidated or the non-consolidation of an entity that otherwise would have been consolidated.
Consolidated VIEs (the Company is the primary beneficiary)
Based on management’s analysis, the Company is the primary beneficiary of thirteen VIEs at September 30, 2015: Apidos CDO I, Apidos CDO III, Apidos Cinco CDO, Apidos CLO VIII, RREF CDO 2006-1, RREF CDO 2007-1, Whitney CLO I, RCC CRE Notes 2013, RCC 2014-CRE2, RCC 2015-CRE3, RCC 2015-CRE4, Moselle CLO and RCM Global, LLC. In performing the primary beneficiary analysis for Apidos CDO I, Apidos CDO III, Apidos Cinco CDO, Apidos CLO VIII, RREF CDO 2006-1, RREF CDO 2007-1, RCC CRE Notes 2013, RCC 2014-CRE2, RCC 2015-CRE3, RCC 2015-CRE4 and RCM Global, LLC, it was determined that the parties that have the power to direct the activities that are most significant to each of these VIEs and who have the right to receive benefits and the obligation to absorb losses that could potentially be significant to these VIEs, are a related-party group. It was then determined that the Company was the party within that group that is more closely associated with each such VIE considering the design of the VIE, the principal-agency relationship between the Company and other members of the related-party group, and the relationship and significance of the activities of the VIE to the Company compared to the other members of the related-party group.
Apidos CDO I, Apidos CDO III, Apidos Cinco CDO, Apidos CLO VIII, RREF CDO 2006-1, RREF CDO 2007-1, RCC CRE Notes 2013, RCC 2014-CRE2, RCC 2015-CRE3 and RCC 2015-CRE4 were formed on behalf of the Company to invest in real estate-related securities, CMBS, property available-for-sale, bank loans, corporate bonds and asset-backed securities and were financed by the issuance of debt securities. The Manager manages the commercial real estate-related entities on behalf of the Company, and CVC Credit Partners manages the commercial finance-related entities on behalf of the Company. By financing these assets with long-term borrowings through the issuance of bonds, the Company seeks to generate attractive risk-adjusted equity returns and to match the term of its assets and liabilities. The primary beneficiary determination for each of these VIEs was made at each VIE’s inception and is continually assessed.
Moselle CLO was a European securitization in which the Company purchased a $30.4 million interest in the form of subordinate notes representing 100% of the Class 1 Subordinated Notes and 67.9% of the Class 2 subordinated Notes in February 2014. The CLO was managed by an independent third-party, and such collateral management activities were determined to be the activities that most significantly impacted the economic performance of the CLO. Though neither the Company nor one of its related parties managed the CLO, due to certain unilateral kick-out rights within the collateral management agreement it was determined that the Company had the power to direct the activities that most significantly impacted the economic performance of Moselle CLO. Having both the power to direct the activities that most significantly impact Moselle CLO and a financial interest that was expected to absorb both positive and negative variability in the CLO that could potentially be significant, the Company was determined to be the primary beneficiary of Moselle CLO and, therefore, consolidated the CLO. During the fourth quarter of 2014, the CLO began the liquidation process and all assets were subsequently sold.
Whitney CLO I was a securitization in which the Company acquired rights to manage the collateral assets held by the entity in February 2011. For a discussion on the primary beneficiary analysis for Whitney, see “— Unconsolidated VIEs – Resource Capital Asset Management,” below.


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15
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RESOURCE CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
SEPTEMBER 30, 2015
(unaudited)


On July 9, 2014, RCC Residential, together with Resource America and certain Resource America employees, acquired through RCM Global a portfolio of securities from JP Morgan for $23.5 million.  The portfolio is managed by Resource America. RCC Residential contributed $15.0 million for a 63.8% membership interest. Each of the members of RCM Global is allocated revenues and expenses of RCM Global in accordance with his or her membership interest. RCM Global was determined to be a VIE based on the equity holders' inability to direct the activities that are most significant to the entity. The Company was determined to be the primary beneficiary of RCM Global and, therefore, consolidated the entity. The Company's ownership interest of the portfolio's remaining assets was 46.4% as of September 30, 2015.
For a discussion of the Company’s securitizations, see Note 1, and for a discussion of the debt issued through the securitizations, see Note 12.
For consolidated CLOs in which the Company does not own 100% of the subordinated notes, the Company imputes an interest rate using expected cash flows over the life of the CLO and records the third party's share of the cash flows as interest expense on the consolidated statements of operations.
The Company has exposure to losses on its securitizations to the extent of its subordinated debt and preferred equity interests in them. The Company is entitled to receive payments of principal and interest on the debt securities it holds and, to the extent revenues exceed debt service requirements and other expenses of the securitizations, distributions with respect to its preferred equity interests. As a result of consolidation, debt and equity interests the Company holds in these securitizations have been eliminated, and the Company’s consolidated balance sheets reflects both the assets held and debt issued by the securitizations to third parties and any accrued expense to third parties. The Company's operating results and cash flows include the gross amounts related to the securitizations' assets and liabilities as opposed to the Company's net economic interests in the securitizations. Assets and liabilities related to the securitizations are disclosed, in the aggregate, on the Company's consolidated balance sheets.
The creditors of the Company’s thirteen consolidated VIEs have no recourse to the general credit of the Company. However, in its capacity as manager, the Company has voluntarily supported two credits in one of its commercial real estate CDOs as the credits went through a restructuring in order to maximize future cash flows from the CDO. For the three and nine months ended September 30, 2015, the Company provided no financial support. For the three and nine months ended September 30, 2014, the Company provided financial support of $209,000 and $758,000, respectively. The Company has provided no other financial support to any other of its VIEs nor does it have any requirement to do so, although it may choose to do so in the future to maximize future cash flows on such investments by the Company. There are no explicit arrangements that obligate the Company to provide financial support to any of its consolidated VIEs.

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RESOURCE CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
SEPTEMBER 30, 2015
(unaudited)


The following table shows the classification and carrying value of assets and liabilities of the Company's consolidated VIEs as of September 30, 2015 (in thousands):
 
Apidos I
 
Apidos
III
 
Apidos
Cinco
 
Whitney CLO I
 
RREF
2006-1
 
RREF
2007-1
 
RCC CRE Notes 2013
 
RCC 2014-CRE2
 
RCC 2015-CRE3
 
RCC 2015-CRE4
 
Moselle
 
RCM Global, LLC
 
Total
ASSETS (3)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
188

 
$
188

Restricted cash (1)
71

 
192

 
14,503

 
116

 
24

 
255

 
1,686

 
—

 
—

 
5,005

 
354

 
—

 
22,206

Investment securities available-for-sale, pledged as collateral, at fair value
—

 
—

 
9,653

 
—

 
5,933

 
55,781

 
—

 
—

 
—

 
—

 
—

 
5,150

 
76,517

Loans, pledged as collateral
—

 
—

 
148,549

 
—

 
88,193

 
190,614

 
139,956

 
351,620

 
342,944

 
304,578

 
—

 
—

 
1,566,454

Loans held for sale
153

 
—

 
2,841

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
2,994

Interest receivable
—

 
—

 
805

 
—

 
350

 
1,329

 
740

 
1,324

 
1,241

 
1,109

 
—

 
950

 
7,848

Prepaid assets
—

 
5

 
29

 
—

 
69

 
74

 
12

 
5

 
—

 
—

 
—

 
—

 
194

Principal paydown receivable
—

 
—

 
—

 
—

 
—

 
—

 
32,100

 
—

 
—

 
—

 
—

 
—

 
32,100

Other Assets
—

 
—

 
—

 
—

 
—

 
—

 
161

 
8

 
—

 
—

 
—

 
713

 
882

Total assets (2)
$
224

 
$
197

 
$
176,380

 
$
116

 
$
94,569

 
$
248,053

 
$
174,655

 
$
352,957

 
$
344,185

 
$
310,692

 
$
354

 
$
7,001

 
$
1,709,383

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
LIABILITIES
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Borrowings
$
—

 
$
—

 
$
152,310

 
$
—

 
$
52,820

 
$
127,195

 
$
125,833

 
$
232,030

 
$
278,444

 
$
220,403

 
$
57

 
$
—

 
$
1,189,092

Accrued interest expense
—

 
—

 
209

 
—

 
25

 
101

 
122

 
127

 
214

 
155

 
—

 
—

 
953

Derivatives, at fair value
—

 
—

 
—

 
—

 
197

 
4,577

 
—

 
—

 
—

 
—

 
—

 
—

 
4,774

Unsettled loan purchases
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Accounts payable and other liabilities
—

 
—

 
13

 
—

 
17

 
5

 
(2
)
 
10

 
—

 
—

 
154

 
11

 
208

Total liabilities
$
—

 
$
—

 
$
152,532

 
$
—

 
$
53,059

 
$
131,878

 
$
125,953

 
$
232,167

 
$
278,658

 
$
220,558

 
$
211

 
$
11

 
$
1,195,027

 
(1)    Includes $6.9 million designated to fund future commitments on specific commercial real estate loans in certain of the securitizations.
(2)    Assets of each of the consolidated VIEs may only be used to settle the obligations of each respective VIE.
(3)
In October 2013, the Company liquidated Apidos CLO VIII and all of the assets were sold. However, the Company still owns its share of beneficial interests that caused it to consolidate it.
Unconsolidated VIEs (the Company is not the primary beneficiary, but has a variable interest)
Based on management’s analysis, the Company is not the primary beneficiary of the VIEs discussed below since it does not have both (i) the power to direct the activities that most significantly impact the VIE’s economic performance and (ii) the obligation to absorb the losses of the VIE or the right to receive the benefits from the VIE, which could be significant to the VIE. Accordingly, the following VIEs are not consolidated in the Company’s financial statements as of September 30, 2015. The Company’s maximum exposure to risk for each of these unconsolidated VIEs is set forth in the “Maximum Exposure to Loss” column in the table below.

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17
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RESOURCE CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
SEPTEMBER 30, 2015
(unaudited)


LEAF Commercial Capital, Inc.
On November 16, 2011, the Company together with LEAF Financial, Inc. ("LEAF Financial"), a subsidiary of Resource America, and LEAF Commercial Capital, Inc. (“LCC”), another subsidiary of Resource America, entered into a stock purchase agreement and related agreements (collectively the “SPA”) with Eos Partners, L.P., a private investment firm, and its affiliates (“Eos”). In exchange for its prior interests in its lease related investments, the Company received 31,341 shares of Series A Preferred Stock (the "Series A Preferred Stock"), 4,872 shares of newly issued 8% Series B Redeemable Preferred Stock (the "Series B Preferred Stock") and 2,364 shares of newly issued Series D Redeemable Preferred Stock (the "Series D Preferred Stock"), collectively representing, on a fully-diluted basis, assuming conversion, a 26.7% interest in LCC. At the time of investment, the Company’s investment in LCC was valued at $36.3 million based on a third-party valuation at that time.  During 2013, the Company entered into a third stock purchase agreement with LCC to purchase 3,682 shares of newly issued Series A-1 Preferred Stock (the "Series A-1 Preferred Stock") for $3.7 million and 4,445 shares of newly issued Series E Preferred Stock (the "Series E Preferred Stock") for $4.4 million. The Series E Preferred Stock has priority over all other classes of preferred stock. The Company's fully-diluted interest in LCC, assuming conversion, was 28.4% at September 30, 2015. The Company’s investment in LCC was recorded at $40.8 million and $39.4 million as of September 30, 2015 and December 31, 2014, respectively. The Company determined that it is not the primary beneficiary of LCC because it does not participate in any management or portfolio decisions, holds only two of six board positions, and only controls 28.4% of the voting rights in the entity. Furthermore, Eos holds consent rights with respect to significant LCC actions, including the incurrence of indebtedness, consummation of a sale of the entity, liquidation or initiating a public offering.
Unsecured Junior Subordinated Debentures
The Company has a 100% interest in the common shares of Resource Capital Trust I (“RCT I”) and RCC Trust II (“RCT II”), valued at $1.5 million in the aggregate (or 3% of each trust). RCT I and RCT II were formed for the purposes of providing debt financing to the Company, as described below. The Company completed a qualitative analysis to determine whether or not it is the primary beneficiary of each of the trusts and determined that it was not the primary beneficiary of either trust because it does not have the power to direct the activities most significant to the trusts, which include the collection of principal and interest and protection of collateral through servicing rights. Accordingly, neither trust is consolidated into the Company’s consolidated financial statements.
The Company records its investments in RCT I and RCT II’s common shares as investments in unconsolidated trusts using the cost method and records dividend income when declared by RCT I and RCT II. The trusts each hold subordinated debentures for which the Company is the obligor in the amount of $25.8 million for RCT I and $25.8 million for RCT II. The debentures were funded by the issuance of trust preferred securities of RCT I and RCT II. The Company will continuously reassess whether it should be deemed to be the primary beneficiary of the trusts.
Resource Capital Asset Management CLOs
In February 2011, the Company purchased a company that managed bank loan assets through five CLOs. As a result, the Company became entitled to collect senior, subordinated and incentive management fees from these CLOs. The purchase price of $22.5 million resulted in an intangible asset that was allocated to each of the five CLOs and is amortized over the expected life of each CLO. The unamortized balance of the intangible asset was $8.1 million and $9.4 million at September 30, 2015 and December 31, 2014, respectively. The Company recognized fee income of $791,000 and $2.7 million for the three and nine months ended September 30, 2015, respectively and $1.2 million and $4.0 million for the three and nine months ended September 30, 2014, respectively. With respect to four of these CLOs, the Company determined that it does not hold a controlling financial interest and, therefore, is not the primary beneficiary. One of the CLOs was liquidated in February 2013. With respect to the fifth CLO, Whitney CLO I, in October 2012, the Company purchased 66.6% of its preferred equity, which resulted in consolidation. Based upon that purchase, the Company determined that it had an obligation to absorb losses and/or the right to receive benefits that could potentially be significant to Whitney CLO I and that a related party had the power to direct the activities that are most significant to the VIE. As a result, together with the related party, the Company had both the power to direct and the right to receive benefits and the obligation to absorb losses. It was then determined that, between the Company and the related party, the Company was the party within that group that was more closely associated with Whitney CLO I because of its preferred equity interest in Whitney CLO I. The Company, therefore, consolidated Whitney CLO I. In May 2013, the Company purchased additional equity in this CLO which increased its ownership of the outstanding preferred equity to 68.3%. In September 2013, the Company liquidated Whitney CLO I, and, as a result, all of the assets were sold.     

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18
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RESOURCE CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
SEPTEMBER 30, 2015
(unaudited)


Investment in ZAIS
In February 2015, the Company made an investment in ZAIS CLO 4 Limited, an offshore financing vehicle created to acquire and warehouse syndicated bank loans, through its wholly-owned, indirect subsidiary ZAIS and through its consolidated subsidiary Pelium Capital together with a certain Resource America employee. The Company, through ZAIS and Pelium Capital, committed to invest $10.0 million and $3.0 million, respectively, during the vehicle's warehousing period. The vehicle is managed by ZAIS Leveraged Loan Manager 4, LLC (the “Collateral Manager”), an entity unrelated to the Company or to Pelium Capital, and such collateral management activities were determined to be the activities that most significantly impacted the economic performance of the entity. The Collateral Manager can be replaced either for cause by the entity’s administrative agent if there is an event of default or by a unanimous vote of the entity’s equity investors, excluding any preference shares held by the Collateral Manager or its affiliates. Although the Company has an investment in the entity that is potentially significant, because it was determined that the Company did not have the ability to kick out the collateral manager, the Company was not determined to be the primary beneficiary and, hence, not required to consolidate ZAIS CLO 4, Limited. As of September 30, 2015, the Company had invested $10.0 million and $3.0 million through ZAIS and Pelium Capital, respectively. The Company accounts for its investment in ZAIS as an investment security available-for-sale in its consolidated financial statements.
Investment in Harvest CLO XV Designated Activity Company
In February 2015, the Company made an investment in Harvest CLO XV Designated Activity Company ("Harvest XV"), an offshore financing vehicle created to acquire and warehouse syndicated bank loans, through its wholly-owned, direct subsidiary Commercial II. The vehicle is managed by 3i Debt Management Investments Limited (the “Collateral Manager”), an entity unrelated to the Company, and such collateral management activities were determined to be the activities that most significantly impacted the economic performance of the entity. The Collateral Manager can be replaced only for cause by the entity’s administrative agent. Although the Company has an investment in the entity that is potentially significant, because it was determined that the Company did not have the ability to unilaterally kick out the collateral manager, the Company was not determined to be the primary beneficiary and, hence, not required to consolidate Harvest XV. As of September 30, 2015, the Company had invested $11.2 million in Harvest XV's warehouse. The Company accounts for its investment in Harvest XV as an investment security available-for-sale in its consolidated financial statements.
The following table shows the classification, carrying value and maximum exposure to loss with respect to the Company’s unconsolidated VIEs as of September 30, 2015 (in thousands):
 
Unconsolidated Variable Interest Entities
 
LCC
 
Unsecured
Junior
Subordinated
Debentures
 
Resource
Capital Asset
Management
CDOs
 
Investment in ZAIS and Harvest XV
 
Total
 
Maximum
Exposure
to Loss
Investment in unconsolidated entities
$
40,779

 
$
1,548

 
$
—

 
$
24,471

 
$
66,798

 
$
66,798

Intangible assets
—

 
—

 
8,088

 
—

 
8,088

 
$
8,088

Total assets
40,779

 
1,548

 
8,088

 
24,471

 
74,886

 

 
 
 
 
 
 
 
 
 
 
 
 
Borrowings
—

 
51,360

 
—

 
—

 
51,360

 
N/A
Total liabilities
—

 
51,360

 
—

 
—

 
51,360

 
N/A
Net asset (liability)
$
40,779

 
$
(49,812
)
 
$
8,088

 
$
24,471

 
$
23,526

 
N/A
As of September 30, 2015, there were no explicit arrangements or implicit variable interests that could require the Company to provide financial support to any of its unconsolidated VIEs.

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19
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RESOURCE CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
SEPTEMBER 30, 2015
(unaudited)


NOTE 4 - SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental disclosure of cash flow information is summarized for the periods indicated (in thousands):
 
For the Nine Months Ended
 
September 30,
 
2015
 
2014
Non-cash operating activities include the following:
 
 
 
Reclassification of linked transactions, net at fair value to investment securities available-for-sale, pledged as collateral, at fair value and borrowings (1)
$
15,367

 
$
—

 
 
 
 
Non-cash investing activities include the following:
 
 
 
Reclassification of linked transactions, net at fair value to investment securities available-for-sale, pledged as collateral, at fair value (1)
$
48,764

 
$
—

 
 
 
 
Non-cash financing activities include the following:
 

 
 

Distributions on common stock declared but not paid
$
20,667

 
$
26,629

Distributions on preferred stock declared but not paid
$
4,077

 
$
5,555

Reclassification of linked transactions, net at fair value to borrowings (1)
$
33,397

 
$
—

 
(1)
As a result of an accounting standards update adopted on January 1, 2015 (see Note 2), the Company unlinked its previously linked transactions, resulting in non-cash increases in both its investment securities available-for-sale, pledged as collateral, at fair value and related repurchase agreements borrowings balances.
NOTE 5 - INVESTMENT SECURITIES, TRADING
The following table summarizes the Company's structured notes and RMBS that are classified as investment securities, trading and carried at fair value (in thousands). Structured notes are CLO debt securities collateralized by syndicated bank loans, and RMBS is a type of mortgage-backed debt obligation whose cash flows come from residential mortgage debt.
 
Amortized Cost
 
Unrealized Gains
 
Unrealized Losses
 
Fair Value
As of September 30, 2015:
 
 
 
 
 
 
 
Structured notes
$
26,635

 
$
1,952

 
$
(2,872
)
 
$
25,715

RMBS
1,896

 
—

 
(1,896
)
 
—

Total
$
28,531

 
$
1,952

 
$
(4,768
)
 
$
25,715

 
 
 
 
 
 
 
 
As of December 31, 2014:
 

 
 

 
 

 
 

Structured notes
$
22,876

 
$
1,098

 
$
(3,188
)
 
$
20,786

RMBS
1,896

 
—

 
(1,896
)
 
—

Total
$
24,772

 
$
1,098

 
$
(5,084
)
 
$
20,786

The Company sold 19 and two securities during the nine months ended September 30, 2015 and 2014, for a net realized gain of approximately $1.4 million and $2.5 million, respectively. The Company held 50 and 37 investment securities, trading as of September 30, 2015 and December 31, 2014, respectively.

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20
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RESOURCE CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
SEPTEMBER 30, 2015
(unaudited)


NOTE 6 - INVESTMENT SECURITIES AVAILABLE-FOR-SALE
The following table summarizes the Company's investment securities, including those pledged as collateral and classified as available-for-sale, which are carried at fair value (in thousands):
 
Amortized Cost (1)
 
Unrealized Gains
 
Unrealized Losses
 
Fair Value
As of September 30, 2015:
 
 
 
 
 
 
 
CMBS
$
175,167

 
$
3,902

 
$
(1,244
)
 
$
177,825

RMBS
2,286

 
111

 
(77
)
 
2,320

ABS
47,110

 
5,419

 
(381
)
 
52,148

Corporate bonds
2,420

 
—

 
(113
)
 
2,307

Total
$
226,983

 
$
9,432

 
$
(1,815
)
 
$
234,600

 
 
 
 
 
 
 
 
As of December 31, 2014:
 

 
 

 
 

 
 

CMBS
$
168,669

 
$
4,938

 
$
(3,202
)
 
$
170,405

RMBS
29,814

 
937

 
—

 
30,751

ABS
55,617

 
16,876

 
(336
)
 
72,157

Corporate bonds
2,415

 
10

 
(18
)
 
2,407

Total
$
256,515

 
$
22,761

 
$
(3,556
)
 
$
275,720

 
(1)
As of September 30, 2015 and December 31, 2014, $118.8 million and $197.8 million, respectively, of investment securities available-for-sale were pledged as collateral under related financings.

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21
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RESOURCE CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
SEPTEMBER 30, 2015
(unaudited)


The following table summarizes the estimated maturities of the Company’s CMBS, RMBS, ABS and corporate bonds according to their estimated weighted average life classifications (in thousands, except percentages):
Weighted Average Life
Fair Value
 
Amortized Cost
 
Weighted Average Coupon
As of September 30, 2015:
 
 
 
 
 
Less than one year
$
125,357

(1) 
$
124,387

 
8.18%
Greater than one year and less than five years
82,189

 
77,757

 
6.66%
Greater than five years and less than ten years
13,643

 
11,779

 
10.19%
Greater than ten years
13,411

 
13,060

 
9.02%
Total
$
234,600

 
$
226,983

 
7.81%
 
 
 
 
 
 
As of December 31, 2014:
 

 
 

 
 
Less than one year
$
78,095

(1) 
$
79,649

 
4.13%
Greater than one year and less than five years
115,302

 
100,909

 
4.64%
Greater than five years and less than ten years
20,177

 
17,516

 
16.45%
Greater than ten years
62,146

 
58,441

 
7.86%
Total
$
275,720

 
$
256,515

 
6.08%
 
(1)
The Company expects that the maturity dates of these CMBS and ABS will either be extended or that they will be paid in full.
At September 30, 2015, the contractual maturities of the CMBS investment securities available-for-sale range from October 2015 to December 2022.  The contractual maturity date of RMBS investment securities available-for-sale is June 2029. The contractual maturities of the ABS investment securities available-for-sale range from October 2015 to October 2050. The contractual maturities of the corporate bond investment securities available-for-sale range from May 2016 to December 2019.
The following table shows the fair value, gross unrealized losses and number of securities aggregated by investment category and length of time, that individual investment securities available-for-sale have been in a continuous unrealized loss position during the periods specified (in thousands, except number of securities):
 
Less than 12 Months
 
More than 12 Months
 
Total
 
Fair
Value
 
Unrealized Losses
 
Number
of
Securities
 
Fair
Value
 
Unrealized Losses
 
Number
of
Securities
 
Fair
 Value
 
Unrealized Losses
 
Number
of
Securities
As of September 30, 2015:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CMBS
$
73,950

 
$
(340
)
 
38

 
$
16,649

 
$
(904
)
 
13

 
$
90,599

 
$
(1,244
)
 
51

ABS
7,082

 
(195
)
 
8

 
1,132

 
(186
)
 
8

 
8,214

 
(381
)
 
16

Corporate bonds
945

 
(6
)
 
2

 
1,362

 
(107
)
 
1

 
2,307

 
(113
)
 
3

RMBS
1,241

 
(77
)
 
2

 
—

 
—

 
—

 
1,241

 
(77
)
 
2

Total temporarily
impaired securities
$
83,218

 
$
(618
)
 
50

 
$
19,143

 
$
(1,197
)
 
22

 
$
102,361

 
$
(1,815
)
 
72

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
As of December 31, 2014:
 

 
 

 
 
 
 

 
 

 
 
 
 

 
 

 
 
CMBS
$
35,860

 
$
(555
)
 
22

 
$
25,583

 
$
(2,647
)
 
13

 
$
61,443

 
$
(3,202
)
 
35

ABS
1,000

 
(278
)
 
8

 
958

 
(58
)
 
3

 
1,958

 
(336
)
 
11

Corporate bonds
1,447

 
(18
)
 
1

 
—

 
—

 
—

 
1,447

 
(18
)
 
1

Total temporarily
impaired securities
$
38,307

 
$
(851
)
 
31

 
$
26,541

 
$
(2,705
)
 
16

 
$
64,848

 
$
(3,556
)
 
47

The unrealized losses in the above table are considered to be temporary impairments due to market factors and are not reflective of credit deterioration.

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22
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RESOURCE CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
SEPTEMBER 30, 2015
(unaudited)


During the nine months ended September 30, 2015 and 2014, the Company did not recognize any other-than-temporary impairment on its investment securities available-for-sale.
The following table summarizes the Company's sales of investment securities available-for-sale (in thousands, except number of securities):
 
For the Three Months Ended
 
For the Nine Months Ended
 
Positions Sold
 
Positions Redeemed
 
Par Amount Sold/Redeemed
 
Realized Gain (Loss)
 
Positions Sold
 
Positions Redeemed
 
Par Amount Sold/Redeemed
 
Realized Gain (Loss)
September 30, 2015:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ABS
8
 
—
 
$
15,462

 
$
2,437

 
15
 
3
 
$
31,399

 
$
10,547

RMBS
—
 
—
 
$
—

 
$
—

 
6
 
—
 
$
28,305

 
$
984

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
September 30, 2014:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ABS
3
 
—
 
$
6,947

 
$
2,974

 
3
 
1
 
$
9,447

 
$
3,000

Corporate bonds
—
 
1
 
$
1,000

 
$
48

 
—
 
2
 
$
1,630

 
$
47

CMBS
—
 
—
 
$
—

 
$
—

 
6
 
—
 
$
28,470

 
$
182

    

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23
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RESOURCE CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
SEPTEMBER 30, 2015
(unaudited)


NOTE 7 - LOANS
The following is a summary of the Company’s loans (in thousands):
Loan Description
 
Principal
 
Unamortized (Discount)
Premium, net (1)
 
Carrying
Value (2)
As of September 30, 2015:
 
 
 
 
 
 
Commercial real estate loans:
 
 

 
 

 
 

Whole loans
 
$
1,612,442

 
$
(9,057
)
 
$
1,603,385

B notes
 
15,984

 
(20
)
 
15,964

Mezzanine loans
 
45,382

 
5

 
45,387

Total commercial real estate loans
 
1,673,808

 
(9,072
)
 
1,664,736

Bank loans
 
150,122

 
(489
)
 
149,633

Middle market loans
 
350,325

 
(854
)
 
349,471

Residential mortgage loans, held for investment
 
2,422

 
—

 
2,422

Subtotal loans before allowance
 
2,176,677

 
(10,415
)
 
2,166,262

Allowance for loan loss
 
(47,284
)
 
—

 
(47,284
)
Total loans held for investment, net of allowance
 
2,129,393

 
(10,415
)
 
2,118,978

Bank loans held for sale
 
2,994

 
—

 
2,994

Residential mortgage loans held for sale, at fair value (3)
 
113,007

 
—

 
113,007

Total loans held for sale
 
116,001

 
—

 
116,001

Total loans, net
 
$
2,245,394

 
$
(10,415
)
 
$
2,234,979

 
 
 
 
 
 
 
As of December 31, 2014:
 
 

 
 

 
 

Commercial real estate loans:
 
 

 
 

 
 

Whole loans 
 
$
1,271,121

 
$
(7,529
)
 
$
1,263,592

B notes
 
16,120

 
(48
)
 
16,072

Mezzanine loans
 
67,446

 
(80
)
 
67,366

Total commercial real estate loans
 
1,354,687

 
(7,657
)
 
1,347,030

Bank loans
 
332,058

 
(1,410
)
 
330,648

Middle market loans
 
250,859

 
(746
)
 
250,113

Residential mortgage loans, held for investment
 
2,802

 
—

 
2,802

Subtotal loans before allowance
 
1,940,406

 
(9,813
)
 
1,930,593

Allowance for loan loss
 
(4,613
)
 
—

 
(4,613
)
Total loans held for investment, net of allowance
 
1,935,793

 
(9,813
)
 
1,925,980

Bank loans held for sale
 
282

 
—

 
282

Residential mortgage loans held for sale, at fair value (3)
 
113,393

 
—

 
113,393

Total loans held for sale
 
113,675

 
—

 
113,675

Total loans, net
 
$
2,049,468

 
$
(9,813
)
 
$
2,039,655

 
(1)
Amounts include deferred amendment fees of $45,000 and $88,000 and deferred upfront fees of $19,000 and $82,000 being amortized over the life of the bank loans as of September 30, 2015 and December 31, 2014, respectively.  Amounts also include loan origination fees of $9.5 million and $8.1 million as of September 30, 2015 and December 31, 2014, respectively.
(2)
Substantially all loans are pledged as collateral under various borrowings at September 30, 2015 and December 31, 2014, respectively.
(3)
Residential mortgage loans held for sale, at fair value, consisted of $60.5 million and $52.5 million of agency-conforming and jumbo mortgage loans, respectively, as of September 30, 2015. Residential mortgage loans held for sale, at fair value, consisted of $28.9 million and $82.6 million of agency-conforming and jumbo mortgage loans, respectively, as of December 31, 2014. Amortized cost approximates fair value.

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24
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RESOURCE CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
SEPTEMBER 30, 2015
(unaudited)


Commercial Real Estate Loans
The following is a summary of the Company’s commercial real estate loans held for investment (in thousands):
Description
 
Quantity
 
Amortized Cost
 
Contracted
Interest Rates
 
Maturity Dates(3)
As of September 30, 2015:
 
 
 
 
 
 
 
 
Whole loans, floating rate (1) (4) (5)
 
86
 
$
1,603,385

 
LIBOR plus 1.75% to
LIBOR plus 15.00%
 
October 2015 to February 2019
B notes, fixed rate
 
1
 
15,964

 
8.68%
 
April 2016
Mezzanine loans, fixed rate (6)
 
2
 
45,387

 
9.01%
 
September 2016
Total (2) 
 
89
 
$
1,664,736

 
 
 
 
 
 
 
 
 
 
 
 
 
As of December 31, 2014:
 
 
 
 

 
 
 
 
Whole loans, floating rate(1) (4) (5)
 
73
 
$
1,263,592

 
LIBOR plus 1.75% to
LIBOR plus 15.00%
 
May 2015 to
February 2019
B notes, fixed rate
 
1
 
16,072

 
8.68%
 
April 2016
Mezzanine loans, floating rate
 
1
 
12,558

 
LIBOR plus 15.32%
 
April 2016
Mezzanine loans, fixed rate
 
3
 
54,808

 
0.50% to 18.71%
 
January 2016 to
September 2019
Total (2) 
 
78
 
$
1,347,030

 
 
 
 
 
(1)
Whole loans had $103.9 million and $105.1 million in unfunded loan commitments as of September 30, 2015 and December 31, 2014, respectively.  These unfunded commitments are advanced as the borrowers formally request additional funding as permitted under the loan agreement and any necessary approvals have been obtained.
(2)
Totals do not include allowance for loan losses of $42.1 million and $4.0 million as of September 30, 2015 and December 31, 2014, respectively.
(3)
Maturity dates do not include possible extension options that may be available to the borrowers.
(4)
Includes two whole loans with a combined $12.0 million mezzanine component that have fixed rates of 12.0%, and two whole loans with a combined $4.2 million mezzanine component that have fixed rates of 15.0%, as of September 30, 2015 and December 31, 2014.
(5)
Includes a $799,000 junior mezzanine tranche of a whole loan that has a fixed rate of 10.0% as of September 30, 2015 and December 31, 2014.
(6)
Contracted interest rates and maturity dates do not include rates or maturity dates associated with one loan with an amortized cost of $38.1 million that was fully reserved as of June 30, 2015.

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25
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RESOURCE CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
SEPTEMBER 30, 2015
(unaudited)


The following is a summary of the weighted average maturity of the Company’s commercial real estate loans, at amortized cost (in thousands):
Description
 
2015
 
2016
 
2017 and Thereafter
 
Total
As of September 30, 2015:
 
 
 
 
 
 
 
 
B notes
 
$
—

 
$
—

 
$
15,964

 
$
15,964

Mezzanine loans
 
—

 
38,072

 
7,315

 
45,387

Whole loans
 
—

 
39,527

 
1,563,858

 
1,603,385

Total (1) 
 
$
—

 
$
77,599

 
$
1,587,137

 
$
1,664,736

 
 
 
 
 
 
 
 
 
As of December 31, 2014:
 
2015
 
2016
 
2017 and Thereafter
 
Total
B notes
 
$
—

 
$
16,072

 
$
—

 
$
16,072

Mezzanine loans
 
—

 
16,736

 
50,630

 
67,366

Whole loans
 
—

 
27,665

 
1,235,927

 
1,263,592

Total (1) 
 
$
—

 
$
60,473

 
$
1,286,557

 
$
1,347,030

 
(1)
Weighted average maturity of commercial real estate loans assumes full exercise of extension options available to borrowers.
At September 30, 2015, approximately 30.4%, 23.3% and 5.9% of the Company's commercial real estate portfolio was concentrated in Texas, California, and Arizona, respectively. At December 31, 2014, approximately 27.4%, 27.3%, and 7.3% of the Company's commercial real estate loan portfolio was concentrated in California, Texas, and Arizona, respectively.
Bank Loans
At September 30, 2015, the Company’s bank loan portfolio, including loans held for sale, consisted of $151.5 million (net of allowance of $1.1 million) of floating rate loans, which bear interest ranging between the three month London Interbank Offered Rate (“LIBOR”) plus 1.25% and the three month LIBOR plus 8.00% with maturity dates ranging from October 2015 to February 2024.  
At December 31, 2014, the Company’s bank loan portfolio, including loans held for sale, consisted of $330.4 million (net of allowance of $570,000) of floating rate loans, which bear interest ranging between the three month LIBOR plus 1.25% and the three month LIBOR plus 8.75% with maturity dates ranging from January 2015 to February 2024.  


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26
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RESOURCE CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
SEPTEMBER 30, 2015
(unaudited)


The following table provides information as to the lien position and status of the Company's bank loans, at amortized cost (in thousands):
 
Apidos I
 
Apidos III 
 
Apidos Cinco
 
Total
As of September 30, 2015
 
 
 
 
 
 
 
Loans held for investment:
 
 
 
 
 
 
 
First lien loans
$
—

 
$
—

 
$
146,651

 
$
146,651

Second lien loans
—

 
—

 
2,508

 
2,508

Third lien loans
—

 
—

 
—

 
—

Defaulted first lien loans
—

 
—

 
215

 
215

Defaulted second lien loans
—

 
—

 
259

 
259

Total
—

 
—

 
149,633

 
149,633

First lien loans held for sale at fair value
153

 
—

 
2,841

 
2,994

Total
$
153

 
$
—

 
$
152,474

 
$
152,627

 
 
 
 
 
 
 
 
As of December 31, 2014:
 

 
 

 
 

 
 

Loans held for investment:
 

 
 

 
 

 
 

First lien loans
$
153

 
$
80,196

 
$
245,377

 
$
325,726

Second lien loans
—

 
—

 
3,572

 
3,572

Third lien loans
—

 
—

 
—

 
—

Defaulted first lien loans
—

 
—

 
—

 
—

Defaulted second lien loans
—

 
971

 
379

 
1,350

Total
153

 
81,167

 
249,328

 
330,648

First lien loans held for sale at fair value
—

 
—

 
282

 
282

Total
$
153

 
$
81,167

 
$
249,610

 
$
330,930

The following is a summary of the weighted average maturity of the Company’s bank loans, at amortized cost and loans held-for-sale, at the lower of cost or market (in thousands):
 
September 30,
2015
 
December 31,
2014
Less than one year
$
2,518

 
$
7,829

Greater than one year and less than five years
145,216

 
274,332

Five years or greater
4,893

 
48,769

 
$
152,627

 
$
330,930

At September 30, 2015 approximately 13.2% , 12.5% and 9.6%, of the Company’s bank loan portfolio was concentrated in the collective industry grouping of automobile, diversified/conglomerate service and healthcare, education and childcare, respectively. At December 31, 2014, approximately 8.5%, 11.7% and 17.5% of the Company’s bank loan portfolio was concentrated in the collective industry grouping of automobile, diversified/conglomerate service and healthcare, education and childcare, respectively.
Middle Market Loans
At September 30, 2015, the Company’s middle market loan portfolio consisted of $345.4 million (net of allowance of $4.1 million) of floating rate loans, which bear interest ranging between the one or three month LIBOR plus 6.25% and one or three month LIBOR plus 11.75% with maturity dates ranging from December 2016 to July 2023.  
At December 31, 2014, the Company’s middle market loan portfolio consisted of $250.1 million of floating rate loans, which bore interest ranging between the one or three month LIBOR plus 5.50% and the three month LIBOR plus 9.25% with maturity dates ranging from December 2016 to November 2022.  

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27
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RESOURCE CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
SEPTEMBER 30, 2015
(unaudited)


The following table provides information as to the lien position and status of middle market loans, at amortized cost (in thousands):            
 
September 30,
2015
 
December 31,
2014
First Lien
$
221,961

 
$
149,287

Second Lien
122,554

 
100,826

First Lien Defaulted
—

 
—

Second Lien Defaulted
4,956

 
—

 
$
349,471

 
$
250,113

The following is a summary of the weighted average maturity of the Company’s middle market loans, at amortized cost (in thousands):
 
September 30,
2015
 
December 31,
2014
Less than one year
$
—

 
$
—

Greater than one year and less than five years
210,773

 
132,353

Five years or greater
138,698

 
117,760

 
$
349,471

 
$
250,113

At September 30, 2015 and December 31, 2014, approximately 13.0% and 2.8%, respectively, of the Company's middle market loan portfolio was concentrated in the collective industry grouping of diversified and conglomerate service and 13.0% and 13.7%, respectively, of the Company's middle market loan portfolio was concentrated in the collective industry grouping of personal, food and miscellaneous service.    
The following is a summary of the allocation of the allowance for loan loss with respect to the Company's loans (in thousands, except percentages) by asset class:
Description
 
Allowance for
Loan Loss
 
Percentage of Total Allowance
As of September 30, 2015:
 
 
 
 
B notes
 
$
20

 
0.04%
Mezzanine loans
 
38,080

 
80.54%
Whole loans
 
4,014

 
8.49%
Bank loans
 
1,084

 
2.29%
Middle market loans
 
4,086

 
8.64%
Total
 
$
47,284

 
 
 
 
 
 
 
As of December 31, 2014:
 
 

 
 
B notes
 
$
55

 
1.19%
Mezzanine loans
 
230

 
4.99%
Whole loans
 
3,758

 
81.46%
Bank loans
 
570

 
12.36%
Total
 
$
4,613

 
 
Principal paydown receivables represent the portion of the Company's loan portfolio for which indication has been provided through its various servicers, trustees, or its asset management group that a payoff or paydown of a loan has been received but which, as of period end, the Company has not received and applied to the outstanding loan balance. At September 30, 2015, principal paydown receivables relating to the Company's loan portfolio totaled $32.1 million, the entirety of which the Company received in cash in October 2015. At December 31, 2014, principal paydown receivables relating to the Company's loan portfolio totaled $40.9 million, the entirety of which the Company received in cash during January 2015.

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28
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RESOURCE CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
SEPTEMBER 30, 2015
(unaudited)


During the quarter ended September 30, 2015, approximately 46.7% of the Company's residential mortgage loans were originated in Georgia, 10.5% in Utah, 9.1% in Virginia, 5.2% in Florida, and 4.1% in South Carolina. During the year ended December 31, 2014, approximately 56.0% of the Company's residential mortgage loans were originated in Georgia, 8.0% in Utah, 7.0% in Virginia, 5.0% in Alabama, and 4.0% in Tennessee.
NOTE 8 - INVESTMENTS IN UNCONSOLIDATED ENTITIES
The following table shows the Company's investments in unconsolidated entities as of September 30, 2015 and December 31, 2014 and equity in earnings of unconsolidated subsidiaries for the three and nine months ended September 30, 2015 and 2014 (in thousands):
 
 
 
 
 
 
 
Equity in Earnings of Unconsolidated Subsidiaries
 
 
 
Balance as of
 
Balance as of
 
For the
three months ended
 
For the
nine months ended
 
For the
three months ended
 
For the
nine months ended
 
Ownership %
 
September 30,
2015
 
December 31,
2014
 
September 30,
2015
 
September 30,
2015
 
September 30,
2014
 
September 30,
2014
Varde Investment Partners, L.P
7.5%
 
$
654

 
$
654

 
$
—

 
$
—

 
$
—

 
$
(19
)
RRE VIP Borrower, LLC (1)
3% to 5%
 
—

 
—

 
—

 
46

 
770

 
2,506

Investment in LCC Preferred Stock
28.4%
 
40,779

 
39,416

 
961

 
1,362

 
13

 
(859
)
Investment in CVC Global Credit Opportunities Fund (2)
14.1%
 
12,877

 
18,209

 
(628
)
 
293

 
47

 
2,004

Investment in
Life Care Funding (3)
60.7%
 
—

 
—

 
—

 
—

 
—

 
(75
)
Investment in School Lane House (1)
 
 
—

 
—

 
1

 
1

 
57

 
1,106

     Subtotal
 
 
54,310

 
58,279

 
334

 
1,702

 
887

 
4,663

Investment in RCT I and II (4)
3.0%
 
1,548

 
1,548

 
(610
)
 
(1,805
)
 
(601
)
 
(1,785
)
Investment in Preferred Equity (1) (5)
 
 
—

 
—

 
—

 
—

 
—

 
410

     Total
 
 
$
55,858

 
$
59,827

 
$
(276
)
 
$
(103
)
 
$
286

 
$
3,288

 
(1)
Investment in School Lane House, Investment in RRE VIP Borrower and the Investment in Preferred Equity were sold or repaid as of December 31, 2014.
(2)
In March 2015, the Company elected a partial redemption of $5.0 million from the fund.
(3)
In January 2013, LTCC invested $2.0 million into LCF for the purpose of originating and acquiring life settlement contracts. In February 2014, the Company invested an additional $1.4 million which resulted in the consolidation of LCF during the first quarter of 2014. Ownership percentage represents ownership following the additional investment and consolidation.
(4)
For the three and nine months ended September 30, 2015 and 2014, these amounts are recorded in interest expense on the Company's consolidated statements of operations.
(5)
For the nine months ended September 30, 2014, these amounts are recorded in interest income on loans on the Company's consolidated statements of operations.

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29
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RESOURCE CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
SEPTEMBER 30, 2015
(unaudited)


NOTE 9 - FINANCING RECEIVABLES
The following tables show the allowance for loan losses and recorded investments in loans for the years indicated (in thousands):
 
Commercial Real Estate Loans
 
Bank Loans
 
Middle Market Loans
 
Residential Mortgage Loans
 
Loans Receivable-Related Party
 
Total
As of September 30, 2015:
 
 
 
 
 
 
 
 
 
 
 
Allowance for Loan Losses:
 
 
 
 
 
 
 
 
 
 
 
Allowance for losses at January 1, 2015
$
4,043

 
$
570

 
$
—

 
$
—

 
$
—

 
$
4,613

Provision (recovery) for loan losses
38,025

 
1,912

 
4,223

 
(110
)
 
(216
)
 
43,834

Loans charged-off
—

 
(1,398
)
 
(137
)
 
110

 
216

 
(1,209
)
Recoveries
46

 
—

 
—

 
—

 
—

 
46

Allowance for losses at September 30, 2015
$
42,114

 
$
1,084

 
$
4,086

 
$
—

 
$
—

 
$
47,284

Ending balance:
 

 
 

 
 
 
 

 
 

 
 

Individually evaluated for impairment
$
40,274

 
$
345

 
$
4,086

 
$
—

 
$
—

 
$
44,705

Collectively evaluated for impairment
$
1,840

 
$
739

 
$
—

 
$
—

 
$
—

 
$
2,579

Loans acquired with deteriorated credit quality
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

Loans:
 

 
 

 
 
 
 

 
 

 
 

Ending balance:
 
 
 

 
 
 
 

 
 

 
 

Individually evaluated for impairment
$
129,078

 
$
474

 
$
349,471

 
$
—

 
$
—

 
$
479,023

Collectively evaluated for impairment
$
1,535,658

 
$
149,159

 
$
—

 
$
2,422

 
$
—

 
$
1,687,239

Loans acquired with deteriorated credit quality
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
 
 
 
 
 
 
 
 
 
 
 
As of December 31, 2014:
 
 
 

 
 
 
 

 
 

 
 

Allowance for Loan Losses:
 
 
 
 
 
 
 
 
 
 
 
Allowance for losses at January 1, 2014
$
10,416

 
$
3,391

 
$
—

 
$
—

 
$
—

 
$
13,807

Provision for loan losses
(3,758
)
 
4,173

 
92

 
—

 
1,297

 
1,804

Loans charged-off
(2,615
)
 
(6,994
)
 
(92
)
 
—

 
(1,297
)
 
(10,998
)
Allowance for losses at December 31, 2014
$
4,043

 
$
570

 
$
—

 
$
—

 
$
—

 
$
4,613

Ending balance:
 

 
 

 
 
 
 

 
 

 
 

Individually evaluated for impairment
$
—

 
$
570

 
$
—

 
$
—

 
$
—

 
$
570

Collectively evaluated for impairment
$
4,043

 
$
—

 
$
—

 
$
—

 
$
—

 
$
4,043

Loans acquired with deteriorated credit quality
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

Loans:
 

 
 

 
 
 
 

 
 

 
 

Ending balance:
 

 
 

 
 
 
 

 
 

 
 

Individually evaluated for impairment
$
166,180

 
$
1,350

 
$
250,113

 
$
—

 
$
1,277

 
$
418,920

Collectively evaluated for impairment
$
1,180,850

 
$
329,580

 
$
—

 
$
2,802

 
$
—

 
$
1,513,232

Loans acquired with deteriorated credit quality
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—



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30
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RESOURCE CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
SEPTEMBER 30, 2015
(unaudited)


Credit quality indicators
Bank Loans
The Company uses a risk grading matrix to assign grades to bank loans.  Loans are graded at inception and updates to assigned grades are made continually as new information is received.  Loans are graded on a scale of 1-5 with 1 representing the Company’s highest rating and 5 representing its lowest rating.  A loan with a rating of a 1 is considered performing within expectations, a loan with a rating of a 2 is considered watching closely with limited liquidity concerns, a loan with a rating of a 3 is considered to have possible future liquidity concerns, a loan with a rating of a 4 is considered to have nearer term liquidity concerns, and a loan with a rating of a 5 has defaulted. The Company also designates loans that are sold after the period end as held for sale at the lower of their fair market value or cost, net of any allowances and costs associated with the loan sales.  The Company considers metrics such as performance of the underlying company, liquidity, collectability of interest, enterprise valuation, default probability, ratings from rating agencies and industry dynamics in grading its bank loans.
Credit risk profiles of bank loans were as follows (in thousands):
 
Rating 1
 
Rating 2
 
Rating 3
 
Rating 4
 
Rating 5
 
Held for Sale
 
Total
As of September 30, 2015:
 
 
 
 
 
 
 
 
 
 
 
 
 
Bank loans
$
133,727

 
$
10,836

 
$
2,148

 
$
2,448

 
$
474

 
$
2,994

 
$
152,627

 
 
 
 
 
 
 
 
 
 
 
 
 
 
As of December 31, 2014:
 

 
 

 
 

 
 

 
 

 
 

 
 

Bank loans
$
291,214

 
$
32,660

 
$
5,424

 
$
—

 
$
1,350

 
$
282

 
$
330,930

All of the Company’s bank loans were current with respect to debt service with the exception of two loans with an aggregate amortized cost of $474,000 as of September 30, 2015. As of December 31, 2014, all of the Company's bank loans were current with respect to debt service with the exception of two loans with an amortized aggregate cost of $1.4 million, one of which defaulted as of March 31, 2014 and the other of which defaulted as of September 30, 2014.
Middle Market Loans
The Company uses a risk grading matrix to assign grades to middle market loans.  At inception, all middle market loans are graded at a 2 and updates to assigned grades are made continually as new information is received. Loans are graded on a scale of 1-5 with 1 representing the Company’s highest rating and 5 representing its lowest rating.  A loan with a rating of a 1 is considered performing above expectations, a loan with a rating of a 2 is considered performing within expectations, a loan with a rating of a 3 is considered performing below expectations and requires close monitoring but no loss of interest or principal is expected, a loan with a rating of a 4 is considered to be performing below expectations and some loss of interest or dividend is expected but no loss of principal, and a loan with a rating of a 5 is considered performing substantially below expectations, in default and some loss of principal is expected. The Company considers metrics such as performance of the underlying company, liquidity, collectability of interest and principal payments, enterprise valuation, default probability, and industry dynamics in grading its middle market loans.
Credit risk profiles of middle market loans were as follows (in thousands):
 
Rating 1
 
Rating 2
 
Rating 3
 
Rating 4
 
Rating 5
 
Held for Sale
 
Total
As of September 30, 2015:
 
 
 
 
 
 
 
 
 
 
 
 
 
Middle market loans
$
52,206

 
$
255,237

 
$
37,072

 
$
—

 
$
4,956

 
$
—

 
$
349,471

 
 
 
 
 
 
 
 
 
 
 
 
 
 
As of December 31, 2014:
 
 
 
 
 
 
 
 
 
 
 
 
 
Middle market loans
$
—

 
$
240,245

 
$
9,868

 
$
—

 
$
—

 
$
—

 
$
250,113

As of September 30, 2015, one loan was in default with a risk rating of a 5. The rest of the Company's portfolio is current with respect to debt service. All of the Company’s middle market loans were current with respect to debt service as of December 31, 2014.

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31
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RESOURCE CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
SEPTEMBER 30, 2015
(unaudited)


Commercial Real Estate Loans
The Company uses a risk grading matrix to assign grades to commercial real estate loans.  Loans are graded at inception and updates to assigned grades are made continually as new information is received.  Loans are graded on a scale of 1-4 with 1 representing the Company’s highest rating and 4 representing its lowest rating. A loan with a rating of a 1 is considered to have satisfactory performance with no issues noted. A loan is graded with a rating of a 2 if a surveillance trigger event has occurred without mitigating circumstance to support such event. A loan with a rating of a 3 has experienced an extended decline in operating performance, a significant deviation from its origination plan or the occurrence of one or more surveillance trigger events which create an increased risk for potential default. A loan with a rating of a 4 is considered to be in default or that default is imminent and full recovery of the unpaid principal balance is improbable. The Company also designates loans that are sold after the period end at the lower of their fair market value or cost, net of any allowances and costs associated with the loan sales.  In addition to the underlying performance of the loan collateral, the Company considers metrics such as the strength of underlying sponsorship, payment history, collectability of interest, structural credit enhancements, market trends and loan terms in grading its commercial real estate loans.
During the second quarter of 2015, the Company recorded an allowance for loan loss on a subordinated mezzanine loan position that was acquired in 2007. The outstanding loan balance of $38.1 million was fully reserved and associated accrued interest of $3.0 million was reversed against interest income, for a total charge to operations of $41.1 million. The loan was originally supported by a portfolio of 13 hotel properties, most of which were luxury brand hotels. An impairment analysis showed that the fair value of the underlying collateral declined from that as of March 31, 2015. Contributing to this decline was a modification of the senior mortgage that accelerated the time horizon for disposing of the remaining properties collateralizing the loan. Compounding this fact, the remaining two luxury brand hotel properties securing the loan are located in or near San Juan, Puerto Rico, and recent economic and credit disruptions in Puerto Rico resulted in events that caused the Company to determine that realizable values had declined rapidly and that the troubled debt restructuring should be fully reserved as of June 30, 2015. This loan remains fully reserved as of September 30, 2015.
Credit risk profiles of commercial real estate loans were as follows (in thousands):
 
Rating 1
 
Rating 2
 
Rating 3
 
Rating 4
 
Held for Sale
 
Total
As of September 30, 2015
 
 
 
 
 
 
 
 
 
 
 
Whole loans
$
1,568,683

 
$
32,500

 
$
—

 
$
2,202

 
$
—

 
$
1,603,385

B notes
15,964

 
—

 
—

 
—

 
—

 
15,964

Mezzanine loans
7,315

 
—

 
—

 
38,072

 
—

 
45,387

 
$
1,591,962

 
$
32,500

 
$
—

 
$
40,274

 
$
—

 
$
1,664,736

 
 
 
 
 
 
 
 
 
 
 
 
As of December 31, 2014:
 

 
 

 
 

 
 

 
 

 
 

Whole loans
$
1,231,092

 
$
32,500

 
$
—

 
$
—

 
$
—

 
$
1,263,592

B notes
16,072

 
—

 
—

 
—

 
—

 
16,072

Mezzanine loans
45,432

 
21,934

 
—

 
—

 
—

 
67,366

 
$
1,292,596

 
$
54,434

 
$
—

 
$
—

 
$
—

 
$
1,347,030

The Company had no delinquent commercial real estate loans as of September 30, 2015 and December 31, 2014.
Residential Mortgage Loans
Residential mortgage loans are reviewed periodically for collectability in light of historical experience, the nature and amount of the loan portfolio, adverse situations that may affect the borrower's ability to repay, estimated value of any underlying collateral, and prevailing underlying conditions. The Company also designates loans that are sold after the period end as held for sale at the lower of their fair market value or cost.

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32
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RESOURCE CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
SEPTEMBER 30, 2015
(unaudited)


Loans Receivable - Related Party
The Company recorded a recovery on loan losses of $216,000 during the nine months ended September 30, 2015 for provisions recorded during the year ended December 31, 2014. During the year ended December 31, 2014, the Company recorded a provision for loan losses on one related-party loan of $1.3 million before extinguishing the loan and bringing direct financing leases in the amount of $2.1 million onto the Company's books in lieu of cash settlement of the loan receivable.
Loan Portfolios Aging Analysis
The following table shows the loan portfolio aging analysis as of the dates indicated at amortized cost (in thousands):
 
30-59 Days
 
60-89 Days
 
Greater than 90 Days
 
Total Past Due
 
Current (3)
 
Total Loans Receivable
 
Total Loans > 90 Days and Accruing
As of September 30, 2015:
 

 
 

 
 
 
 
 
 
 
 
 
 
Whole loans
$
—

 
$
—

 
$
—

 
$
—

 
$
1,603,385

 
$
1,603,385

 
$
—

B notes
—

 
—

 
—

 
—

 
15,964

 
15,964

 
—

Mezzanine loans
—

 
—

 
—

 
—

 
45,387

 
45,387

 
—

Bank loans (1)
—

 
—

 
474

 
474

 
152,153

 
152,627

 
—

Middle market loans
—

 
—

 
4,956

 
4,956

 
344,515

 
349,471

 
—

Residential mortgage loans (2)
—

 
—

 
190

 
190

 
115,239

 
115,429

 
—

Total loans
$
—

 
$
—

 
$
5,620

 
$
5,620

 
$
2,276,643

 
$
2,282,263

 
$
—

 
 
 
 
 
 
 
 
 
 
 
 
 
 
As of December 31, 2014:
 

 
 

 
 

 
 

 
 

 
 

 
 

Whole loans
$
—

 
$
—

 
$
—

 
$
—

 
$
1,263,592

 
$
1,263,592

 
$
—

B notes
—

 
—

 
—

 
—

 
16,072

 
16,072

 
—

Mezzanine loans
—

 
—

 
—

 
—

 
67,366

 
67,366

 
—

Bank loans (1)
—

 
—

 
1,350

 
1,350

 
329,580

 
330,930

 
—

Middle market loans
—

 
—

 
—

 
—

 
250,113

 
250,113

 
—

Residential mortgage loans (2)
443

 
82

 
119

 
644

 
113,612

 
114,256

 
—

Loans receivable- related party
—

 
—

 
—

 
—

 
1,277

 
1,277

 
—

Total loans
$
443

 
$
82

 
$
1,469

 
$
1,994

 
$
2,041,612

 
$
2,043,606

 
$
—

 
(1)
Contains $3.0 million and $282,000 of bank loans held for sale at September 30, 2015 and December 31, 2014, respectively.
(2)
Contains $113.0 million and $113.4 million of residential mortgage loans held for sale at fair value at September 30, 2015 and December 31, 2014, respectively.
(3)
Current loans include one impaired mezzanine loan and one impaired whole loan with amortized costs of $38.1 million and $2.2 million, respectively, that were both fully reserved as of September 30, 2015.



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33
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RESOURCE CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
SEPTEMBER 30, 2015
(unaudited)


Impaired Loans
The following tables show impaired loans as of the dates indicated (in thousands):
 
Recorded Investment
 
Unpaid Principal Balance
 
Specific Allowance
 
Average Investment in Impaired Loans
 
Interest Income Recognized
As of September 30, 2015:
 
 
 
 
 
 
 
 
 
Loans without a specific valuation allowance:
 
 
 
 
 
 
 
 
 
Whole loans
$
129,078

 
$
129,078

 
$
—

 
$
128,591

 
$
15,659

B notes
$
—

 
$
—

 
$
—

 
$
—

 
$
—

Mezzanine loans
$
—

 
$
—

 
$
—

 
$
—

 
$
—

Bank loans
$
—

 
$
—

 
$
—

 
$
—

 
$
—

Middle market loans
$
—

 
$
—

 
$
—

 
$
—

 
$
—

Residential mortgage loans
$
2,422

 
$
2,422

 
$
—

 
$
2,785

 
$
116

Loans receivable - related party
$
—

 
$
—

 
$
—

 
$
—

 
$
—

Loans with a specific valuation allowance:
 
 
 
 
 
 
 
 
 
Whole loans
$
2,202

 
$
2,202

 
$
(2,202
)
 
$
2,202

 
$
45

B notes
$
—

 
$
—

 
$
—

 
$
—

 
$
—

Mezzanine loans
$
38,072

 
$
38,072

 
$
(38,072
)
 
$
38,072

 
$
—

Bank loans
$
474

 
$
474

 
$
(345
)
 
$
237

 
$
—

Middle market loans
$
4,956

 
$
4,900

 
$
(4,086
)
 
$
4,956

 
$
—

Residential mortgage loans
$
—

 
$
—

 
$
—

 
$
—

 
$
—

Loans receivable - related party
$
—

 
$
—

 
$
—

 
$
—

 
$
—

Total:
 

 
 

 
 

 
 

 
 

Whole loans
$
131,280

 
$
131,280

 
$
(2,202
)
 
$
130,793

 
$
15,704

B notes
—

 
—

 
—

 
—

 
—

Mezzanine loans
38,072

 
38,072

 
(38,072
)
 
38,072

 
—

Bank loans
474

 
474

 
(345
)
 
237

 
—

Middle market loans
4,956

 
4,900

 
(4,086
)
 
4,956

 
—

Residential mortgage loans
2,422

 
2,422

 
—

 
2,785

 
116

Loans receivable - related party
—

 
—

 
—

 
—

 
—

 
$
177,204

 
$
177,148

 
$
(44,705
)
 
$
176,843

 
$
15,820

 
 
 
 
 
 
 
 
 
 
As of December 31, 2014:
 

 
 

 
 

 
 

 
 

Loans without a specific valuation allowance:
 

 
 

 
 

 
 

 
 

Whole loans
$
128,108

 
$
128,108

 
$
—

 
$
130,445

 
$
12,679

B notes
$
—

 
$
—

 
$
—

 
$
—

 
$
—

Mezzanine loans
$
38,072

 
$
38,072

 
$
—

 
$
38,072

 
$
2,859

Bank loans
$
—

 
$
—

 
$
—

 
$
—

 
$
—

Middle market loans
$
—

 
$
—

 
$
—

 
$
—

 
$
—

Residential mortgage loans
$
2,082

 
$
2,082

 
$
—

 
$
2,082

 
$
148

Loans receivable - related party
$
—

 
$
—

 
$
—

 
$
—

 
$
—

Loans with a specific valuation allowance:
 

 
 

 
 

 
 

 
 


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34
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RESOURCE CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
SEPTEMBER 30, 2015
(unaudited)


Whole loans
$
—

 
$
—

 
$
—

 
$
—

 
$
—

B notes
$
—

 
$
—

 
$
—

 
$
—

 
$
—

Mezzanine loans
$
—

 
$
—

 
$
—

 
$
—

 
$
—

Bank loans
$
1,350

 
$
1,350

 
$
(570
)
 
$
—

 
$
—

Middle market loans
$
—

 
$
—

 
$
—

 
$
—

 
$
—

Residential mortgage loans
$
—

 
$
—

 
$
—

 
$
—

 
$
—

Loans receivable - related party
$
—

 
$
—

 
$
—

 
$
—

 
$
—

Total:
 

 
 

 
 

 
 

 
 

Whole loans
$
128,108

 
$
128,108

 
$
—

 
$
130,445

 
$
12,679

B notes
—

 
—

 
—

 
—

 
—

Mezzanine loans
38,072

 
38,072

 
—

 
38,072

 
2,859

Bank loans
1,350

 
1,350

 
(570
)
 
—

 
—

Middle market loans
—

 
—

 
—

 
—

 
—

Residential mortgage loans
2,082

 
2,082

 
—

 
2,082

 
148

Loans receivable - related party
—

 
—

 
—

 
—

 
—

 
$
169,612

 
$
169,612

 
$
(570
)
 
$
170,599

 
$
15,686

Troubled-Debt Restructurings
The following tables show troubled-debt restructurings in the Company's loan portfolio (in thousands):
 
Number of Loans
 
Pre-Modification Outstanding Recorded Balance
 
Post-Modification Outstanding Recorded Balance
Nine Months Ended September 30, 2015
 
 
 
 
 
Whole loans
3
 
$
99,959

 
$
99,959

B notes
—
 
—

 
—

Mezzanine loans
1
 
38,072

 
—

Bank loans
—
 
—

 
—

Middle market loans
—
 
—

 
—

Residential mortgage loans
—
 
—

 
—

Loans receivable - related party
—
 
—

 
—

Total loans
4
 
$
138,031

 
$
99,959

 
 
 
 
 
 
 
Number of Loans
 
Pre-Modification Outstanding Recorded Balance
 
Post-Modification Outstanding Recorded Balance
Nine Months Ended September 30, 2014
 
 
 
 
 
Whole loans
2
 
$
16,039

 
$
16,039

B notes
—
 
—

 
—

Mezzanine loans
1
 
38,072

 
38,072

Bank loans
—
 
—

 
—

Middle market loans
—
 
—

 
—

Residential mortgage loans
—
 
—

 
—

Loans receivable - related party
—
 
—

 
—

Total loans
3
 
$
54,111

 
$
54,111

As of September 30, 2015 and 2014, there were no commercial real estate loan troubled-debt restructurings that subsequently defaulted.

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35
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RESOURCE CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
SEPTEMBER 30, 2015
(unaudited)


NOTE 10 - BUSINESS COMBINATIONS
On February 26, 2014, the Company made an additional capital contribution to LCF which gave the Company majority ownership at 50.2%. As a result, the Company began consolidating the LCF joint venture. The joint venture was established for the purpose of originating and acquiring life settlement contracts through a financing facility. On April 30, 2015, the Company committed to another capital contribution in the amount of $750,000, increasing its ownership of LCF to 60.7%. The first installment of $375,000 was funded on April 30, 2015 and the second installment of $375,000 was funded on July 30, 2015.
The Company engaged a third party expert to assist in determining the fair values of the assets and liabilities assumed on this investment. Based on the final valuation, which determined an enterprise value of LCF of approximately $4.1 million, and in accordance with FASB ASC Topic 805, the Company confirmed that no further adjustments are necessary.
NOTE 11 - INTANGIBLE ASSETS
The following table summarizes the activity of intangible assets for the period indicated (in thousands):
 
Management Contracts
 
Wholesale/Correspondent Relationships
 
Mortgage Servicing Rights
 
Total
Balance, January 1, 2015
$
9,434

 
$
302

 
$
8,874

 
$
18,610

Additions
—

 
—

 
12,521

 
12,521

Sales
—

 
—

 
—

 
—

Amortization
(1,346
)
 
(191
)
 
(3,138
)
 
(4,675
)
Total before impairment adjustment
8,088

 
111

 
18,257

 
26,456

Temporary impairment adjustment
—

 
—

 
(650
)
 
(650
)
Balance, September 30, 2015
$
8,088

 
$
111

 
$
17,607

 
$
25,806

Management Contracts and Wholesale/Correspondent Relationships
The Company recognized fee income on management contracts and wholesale/correspondent relationships of $791,000 and $2.7 million for the three and nine months ended September 30, 2015, respectively, and $1.2 million and $4 million for the three and nine months ended September 30, 2014, respectively.
For the three and nine months ended September 30, 2015, the Company recorded amortization expense of $518,000 and $1.5 million, respectively, in relation to the Company's management contracts and wholesale/correspondent relationships. For the three and nine months ended September 30, 2014, the Company recorded amortization expense of $517,000 and $1.5 million, respectively. The Company expects to record amortization expense on its management contracts and wholesale/correspondent relationships of approximately $2.0 million for the year ending December 31, 2015, $1.8 million for the year ending December 31, 2016, $1.8 million for the year ending December 31, 2017, $1.6 million for the year ending 2018, and $1.0 million for the year ending December 31, 2019.  The weighted average amortization period was 6.0 years and 6.6 years at September 30, 2015 and December 31, 2014, respectively.
Mortgage Servicing Rights
Through the Company's wholly-owned residential mortgage loan originator PCM, residential mortgage loans are sold through one of the following methods: (i) sales to or pursuant to programs sponsored by the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation and Government National Mortgage Association, or (ii) sales to private investors. The Company may have continuing involvement in mortgage loans sold by retaining servicing rights and servicing obligations.
The total servicing portfolio consists of loans associated with capitalized mortgage servicing rights (“MSRs”) and loans held for sale.  In accordance with FASB ASC Subtopic 860-50, the Company utilizes the amortization method for the subsequent measurement of its MSRs. The total servicing portfolio was $1.8 billion and $894.8 million as of September 30, 2015 and December 31, 2014.  MSRs recorded in the Company's consolidated balance sheets are related to the capitalized servicing portfolio and are created through the sale of originated residential mortgage loans.

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36
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RESOURCE CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
SEPTEMBER 30, 2015
(unaudited)


For the three and nine months ended September 30, 2015, the Company recognized $1.3 million and $3.1 million, respectively, of amortization expense related to mortgage servicing rights. For the three and nine months ended September 30, 2014, the Company recognized $423,000 and $1.1 million, respectively. The Company expects to recognize amortization related to its mortgage servicing rights portfolio in the amount of $4.1 million for the year ending December 31, 2015, $3.9 million for the year ending December 31, 2016, $3.8 million for the year ending December 31, 2017, $3.7 million for the year ending December 31, 2018, and $3.1 million for the year ending December 31, 2019. The weighted average amortization period was 1.2 years and 1.4 years at September 30, 2015 and December 31, 2014, respectively.
The activity in the loan servicing portfolio associated with capitalized servicing rights consisted of the following (in thousands):
 
September 30,
2015
 
December 31,
2014
Balance, beginning of period
$
894,767

 
$
433,153

Additions
923,473

 
519,915

Payoffs, sales and curtailments
(65,013
)
 
(58,301
)
Balance, end of period
$
1,753,227

 
$
894,767

The value of MSRs is driven by the net positive, or in some cases net negative, cash flows associated with servicing activities.  These cash flows include contractually specified servicing fees, late fees and other ancillary servicing revenue and were recorded within fee income as follows (in thousands):
 
For the Three Months Ended
 
For the Nine Months Ended
 
September 30,
 
September 30,
 
2015
 
2014
 
2015
 
2014
Servicing fees from capitalized portfolio
$
1,071

 
$
413

 
$
2,533

 
$
1,057

Late fees
$
37

 
$
20

 
$
78

 
$
59

Other ancillary servicing revenue
$
2

 
$
1

 
$
9

 
$
4


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37
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RESOURCE CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
SEPTEMBER 30, 2015
(unaudited)



NOTE 12 - BORROWINGS
The Company historically has financed the acquisition of its investments, including investment securities and loans, through the use of secured and unsecured borrowings in the form of securitized notes, repurchase agreements, secured term facilities, warehouse facilities, convertible senior notes, senior secured revolving credit agreements and trust preferred securities issuances.  Certain information with respect to the Company’s borrowings is summarized in the following table (in thousands, except percentages):
 
Principal
Outstanding
 
Unamortized Issuance Costs and Discounts
 
Outstanding Borrowings
 
Weighted Average
Borrowing Rate
 
Weighted Average
Remaining
Maturity
 
Value of
Collateral
As of September 30, 2015:
 
 
 
 
 
 
 
 
 
 
 
RREF CDO 2006-1 Senior Notes
$
52,820

 
$
—

 
$
52,820

 
2.37%
 
30.9 years
 
$
93,757

RREF CDO 2007-1 Senior Notes
127,195

 
—

 
127,195

 
1.20%
 
31.0 years
 
247,080

RCC CRE Notes 2013 Senior Notes
127,215

 
1,382

 
125,833

 
2.66%
 
13.2 years
 
141,114

RCC 2014-CRE2 Senior Notes
235,344

 
3,314

 
232,030

 
1.50%
 
16.6 years
 
349,681

RCC 2015-CRE3 Senior Notes
282,127

 
3,683

 
278,444

 
2.10%
 
16.5 years
 
340,885

RCC 2015-CRE4 Senior Notes
223,735

 
3,332

 
220,403

 
1.92%
 
16.9 years
 
307,697

Apidos Cinco CDO Senior Notes
152,310

 
—

 
152,310

 
1.05%
 
4.6 years
 
171,209

Moselle CLO S.A. Securitized Borrowings, at fair value (1)
57

 
—

 
57

 
N/A
 
N/A
 
354

Unsecured Junior Subordinated Debentures (2)
51,548

 
188

 
51,360

 
4.24%
 
21.1 years
 
—

6.0% Convertible Senior Notes
115,000

 
5,339

 
109,661

 
6.00%
 
3.2 years
 
—

8.0% Convertible Senior Notes
100,000

 
4,885

 
95,115

 
8.00%
 
4.3 years
 
—

CRE - Term Repurchase Facilities (3)
88,050

 
2,756

 
85,294

 
2.27%
 
19 days
 
140,107

CMBS - Term Repurchase Facility (4)
26,328

 
2

 
26,326

 
1.41%
 
19 days
 
32,539

Residential Investments - Term Repurchase Facility (5)
4,629

 
—

 
4,629

 
2.75%
 
356 days
 
5,134

Residential Mortgage Financing Agreements
97,124

 
—

 
97,124

 
2.78%
 
352 days
 
154,531

CMBS - Short Term Repurchase Agreements (6)
63,548

 
—

 
63,548

 
1.72%
 
46 days
 
90,444

Senior Secured Revolving Credit Agreement
162,000

 
3,258

 
158,742

 
3.03%
 
3.5 years
 
344,084

Total
$
1,909,030

 
$
28,139

 
$
1,880,891

 
2.61%
 
12.0 years
 
$
2,418,616


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38
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RESOURCE CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
SEPTEMBER 30, 2015
(unaudited)


 
Principal
Outstanding
 
Unamortized Issuance Costs and Discounts
 
Outstanding Borrowings
 
Weighted Average
Borrowing Rate
 
Weighted Average
Remaining
Maturity
 
Value of
Collateral
As of December 31, 2014:
 
 
 

 
 
 
 
 
 
 
 
RREF CDO 2006-1 Senior Notes  
$
61,423

 
$
—

 
$
61,423

 
2.12%
 
31.6 years
 
$
139,242

RREF CDO 2007-1 Senior Notes  
130,340

 
133

 
130,207

 
1.19%
 
31.8 years
 
271,423

RCC CRE Notes 2013 Senior Notes
226,840

 
2,683

 
224,157

 
2.11%
 
14.0 years
 
249,983

RCC 2014-CRE2 Senior Notes
235,344

 
3,687

 
231,657

 
1.45%
 
17.3 years
 
346,585

Apidos CDO III Senior Notes
74,646

 
—

 
74,646

 
1.18%
 
5.7 years
 
85,553

Apidos Cinco CDO Senior Notes
255,664

 
201

 
255,463

 
0.81%
 
5.4 years
 
272,512

Moselle CLO S.A. Senior Notes, at fair value (7)
63,321

 
—

 
63,321

 
1.49%
 
5.0 years
 
93,576

Moselle CLO S.A. Securitized Borrowings, at fair value (1)
5,619

 
—

 
5,619

 
1.49%
 
5.0 years
 
—

Unsecured Junior Subordinated Debentures (2)
51,548

 
343

 
51,205

 
4.19%
 
21.8 years
 
—

6.0% Convertible Senior Notes
115,000

 
6,626

 
108,374

 
6.00%
 
3.9 years
 
—

CRE - Term Repurchase Facilities (3)
207,640

 
1,958

 
205,682

 
2.43%
 
20 days
 
297,571

CMBS - Term Repurchase Facility (4)
24,967

 
—

 
24,967

 
1.35%
 
20 days
 
30,180

Residential Investments - Term Repurchase Facility (5)
22,248

 
36

 
22,212

 
1.16%
 
1 day
 
27,885

Residential Mortgage Financing Agreements
102,576

 
—

 
102,576

 
2.78%
 
207 days
 
147,472

CMBS - Short Term Repurchase Agreements (6)
44,225

 
—

 
44,225

 
1.63%
 
17 days
 
62,446

Senior Secured Revolving Credit Agreement
113,500

 
2,363

 
111,137

 
2.66%
 
3.7 years
 
262,687

Total
$
1,734,901

 
$
18,030

 
$
1,716,871

 
2.09%
 
10.0 years
 
$
2,287,115

 
(1)
The securitized borrowings were collateralized by the same assets as the Moselle CLO Senior Notes.
(2)
Amount represents junior subordinated debentures issued to RCT I and RCT II in May 2006 and September 2006, respectively.
(3)
Amounts also include accrued interest expense of $63,000 and $198,000 related to CRE repurchase facilities as of September 30, 2015 and December 31, 2014, respectively.
(4)
Amounts also include accrued interest expense of $14,000 and $12,000 related to CMBS repurchase facilities as of September 30, 2015 and December 31, 2014, respectively. Amounts do not reflect CMBS repurchase agreement borrowings that are components of linked transactions as of December 31, 2014.
(5)
Amounts also include accrued interest expense of $8,000 and $20,000 related to residential investment facilities as of September 30, 2015 and December 31, 2014, respectively.
(6)
Amounts also include accrued interest expense of $26,000 and $31,000 related to CMBS short term repurchase facilities as of September 30, 2015 and December 31, 2014.
(7)
The fair value option was elected for the borrowings associated with Moselle CLO. As such, the outstanding borrowings and principal outstanding amounts are stated at fair value. The unpaid principal amounts of these borrowings were $63.3 million at December 31, 2014.

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39
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RESOURCE CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
SEPTEMBER 30, 2015
(unaudited)


Securitizations
The following table sets forth certain information with respect to the Company's securitizations:
Securitization
 
Closing Date
 
Maturity Date
 
Reinvestment Period End
 
Total Note Paydowns as of September 30, 2015
 
 
 
 
 
 
 
 
(in millions)
RREF CDO 2006-1 Senior Notes
 
August 2006
 
August 2046
 
September 2011
 
$
180.4

RREF CDO 2007-1 Senior Notes
 
June 2007
 
September 2046
 
June 2012
 
$
216.6

RCC CRE Notes 2013 Senior Notes
 
December 2013
 
December 2028
 
N/A
 
$
133.6

RCC 2014-CRE2 Senior Notes
 
July 2014
 
April 2032
 
N/A
 
$
—

RCC 2015-CRE3 Senior Notes
 
February 2015
 
March 2032
 
N/A
 
$
—

RCC 2015-CRE4 Senior Notes
 
August 2015
 
August 2032
 
N/A
 
$
—

Apidos CDO III Senior Notes
 
May 2006
 
September 2020
 
June 2012
 
$
262.5

Apidos Cinco CDO Senior Notes
 
May 2007
 
May 2020
 
May 2014
 
$
169.7

Moselle CLO S.A. Senior Notes
 
October 2005
 
January 2020
 
January 2012
 
$
167.2

Moselle CLO S.A. Securitized Borrowings
 
October 2005
 
January 2020
 
January 2012
 
$
5.0

In June 2015, the Company called Apidos CDO III, substantially liquidating the securitization's assets. Proceeds from the sale of these assets, plus proceeds from previous sales and paydowns in the CDO, were used to pay down the securitization's $262.5 million of Senior Notes in full.
The investments held by the Company's securitizations collateralize the securitization's borrowings and, as a result, are not available to the Company, its creditors, or stockholders. All senior notes retained at closing or subsequently repurchased by the Company as of September 30, 2015 eliminate in consolidation.
RCC 2015-CRE3
In February 2015, the Company closed RCC 2015-CRE3, a $346.2 million CRE securitization transaction that provided financing for transitional commercial real estate loans. RCC 2015-CRE3 issued a total of $282.1 million of senior notes at par to unrelated investors.  RCC Real Estate purchased 100% of the Class E and Class F senior notes for $20.8 million and $15.6 million, respectively.  In addition, Resource Real Estate Funding 2015-CRE3 Investor, LLC, a subsidiary of RCC Real Estate, purchased a $27.7 million equity interest representing 100% of the outstanding preference shares.  The senior notes purchased by RCC Real Estate are subordinated in right of payment to all other senior notes issued by RCC 2015-CRE3, but are senior in right of payment to the preference shares.  The equity interest is subordinated in right of payment to all other securities issued by RCC 2015-CRE3.
At closing, the senior notes issued to investors by RCC 2015-CRE3 consisted of the following classes: (i) $193.9 million of Class A notes bearing interest at one-month LIBOR plus 1.40%; (ii) $17.3 million of Class A-S notes bearing interest at one-month LIBOR plus 1.65%; (iii) $19.5 million of Class B notes bearing interest at one-month LIBOR plus 2.40%; (iv) $20.8 million of Class C notes bearing interest at one-month LIBOR plus 3.15%; (v) $30.7 million of Class D notes bearing interest at one-month LIBOR plus 4.00%; (vi) $20.8 million of Class E notes bearing interest at one-month LIBOR plus 4.75%; (vii) and $15.6 million of Class F notes bearing interest at one-month LIBOR plus 5.50%.  All of the notes issued mature in March 2032, although the Company has the right to call the notes anytime after March 2017 until maturity. There is no reinvestment period in RCC 2015-CRE3; however, principal repayments, for a period ending in February 2017, may be used to purchase funding participations with respect to existing collateral held outside of the securitization.

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RESOURCE CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
SEPTEMBER 30, 2015
(unaudited)


RCC 2015-CRE4
In August 2015, the Company closed RCC 2015-CRE4, a $312.9 million CRE securitization transaction that provided financing for transitional commercial real estate loans. RCC 2015-CRE4 issued a total of $223.7 million of senior notes at par to unrelated investors. RCC Real Estate purchased 100% of the Class C senior notes for $26.6 million. In addition, Resource Real Estate Funding 2015-CRE4 Investor, LLC, a subsidiary of RCC Real Estate purchased a $62.6 million equity interest representing 100% of the outstanding preference shares. The senior notes purchased by RCC Real Estate are subordinated in right of payment to all other senior notes issued by RCC 2015-CRE4, but are senior in right of the payment to the preference shares. The equity interest is subordinated in right of payment to all other securities issued by RCC 2015-CRE4.
At closing, the senior notes issued to investors by RCC 2015-CRE4 consisted of the following classes: (i) $179.9 million of Class A notes bearing interest at one-month LIBOR plus 1.40%; (ii) $43.8 million of Class B notes bearing interest at one-month LIBOR plus 3.00%; (iii) $26.6 million of Class C notes bearing interest at one-month LIBOR plus 4.75%. All of the notes issued mature in August 2032, although the Company has the right to call the notes anytime after September 2017 until maturity. There is no reinvestment period in RCC 2015-CRE4; however, principal repayments, for a period ending in September 2017, may be used to purchase funding participations with respect to existing collateral held outside of the securitization.
6.0% Convertible Senior Notes
In connection with the Company's one-for-four reverse stock split, the 6.0% Convertible Senior Notes due 2018, ("6.0% Convertible Senior Notes") automatically adjusted from 150.1502 shares of common stock per $1,000 principal amount of such notes to 37.53755 shares of common stock per $1,000 principal amount of such notes. The conversion price was adjusted from $6.66 to $26.64 as a result of the stock split.
8.0% Convertible Senior Notes
In January 2015, the Company issued and sold in a public offering $100.0 million aggregate principal amount of its 8.0% Convertible Senior Notes due 2020, ("8.0% Convertible Senior Notes") are convertible at the option of the holder. The 8.0% Convertible Senior Notes had an original conversion rate of 187.4414 common shares per $1,000 principal amount of 8.0% Convertible Senior Notes (equivalent to an initial conversion price of $5.34 per common share). Upon conversion of 8.0% Convertible Senior Notes by a holder, the holder will receive cash, the Company's common shares or a combination of cash and the Company's common shares, at the Company's election. In connection with the Company's one-for-four reverse stock split, the 8.0% Convertible Senior Notes automatically adjusted to 46.86035 shares of common stock per $1,000 principal amount of such notes. The conversion price was adjusted from $5.34 to $21.36 as a result of the stock split.
After deducting a $1.0 million underwriting discount and deferred debt issuance costs totaling $2.1 million, the Company received approximately $97.0 million of net proceeds. In addition, the Company recorded a discount of $2.5 million on the 8.0% Convertible Senior Notes that reflects the difference between the stated value of the debt and the fair value of the notes as if they were issued without a conversion feature. 
The aforementioned market discounts and the deferred debt issuance costs will be amortized on a straight-line basis as additional interest expense through maturity on January 15, 2020. Interest on the 8.0% Convertible Senior Notes is paid semi-annually.


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RESOURCE CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
SEPTEMBER 30, 2015
(unaudited)


Repurchase and Credit Facilities
Borrowings under the Company's repurchase agreements were guaranteed by the Company or one of its subsidiaries. The following table sets forth certain information with respect to the Company's borrowings (dollars in thousands):
 
As of September 30, 2015
 
As of December 31, 2014
 
Outstanding
Borrowings
 
 Value of
Collateral
 
Number of
Positions
as Collateral
 
Weighted Average
Interest Rate
 
Outstanding
Borrowings
 
 Value of
Collateral
 
Number of
Positions
as Collateral
 
Weighted Average
Interest Rate
CMBS Term
Repurchase Facility
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Wells Fargo Bank (1)
$
26,326

 
$
32,539

 
27
 
1.41%
 
$
24,967

 
$
30,180

 
33
 
1.35%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CRE Term
Repurchase Facilities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Wells Fargo Bank (2)
78,230

 
128,354

 
6
 
2.21%
 
179,762

 
258,223

 
15
 
2.38%
Deutsche Bank AG (3)
—

 
—

 
—
 
—%
 
25,920

 
39,348

 
2
 
2.78%
Morgan Stanley Bank (4)
7,064


11,753


1

2.80%

—


—


—

—%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Short-Term Repurchase
Agreements - CMBS
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Deutsche Bank Securities, LLC
49,939

 
70,484

 
20
 
1.73%
 
33,783

 
44,751

 
8
 
1.62%
Wells Fargo Securities, LLC
13,609

 
19,960

 
4
 
1.85%
 
10,442

 
17,695

 
1
 
1.66%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential Investments Term Repurchase Facility
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Wells Fargo Bank (5)
4,629

 
5,134

 
6
 
2.75%
 
22,212

 
27,885

 
6
 
1.16%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential Mortgage
Financing Agreements
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
New Century Bank
41,975

 
54,093

 
194
 
2.82%
 
41,387

 
51,961

 
158
 
2.82%
Wells Fargo Bank
55,149

 
100,438

 
163
 
2.75%
 
61,189

 
95,511

 
104
 
2.75%
Totals
$
276,921

 
$
422,755

 
 
 
 
 
$
399,662

 
$
565,554

 
 
 
 
 
(1)
The Wells Fargo CMBS term repurchase facility borrowing includes $2,000 and $0 of deferred debt issuance costs as of September 30, 2015 and December 31, 2014, respectively.
(2)
The Wells Fargo CRE term repurchase facility borrowing includes $927,000 and $1.7 million of deferred debt issuance costs as of September 30, 2015 and December 31, 2014, respectively.
(3)
The Deutsche Bank CRE term repurchase facility includes $0 and $268,000 of deferred debt issuance costs as of September 30, 2015 and December 31, 2014, respectively.
(4)
The Morgan Stanley CRE term repurchase facility includes $1.8 million and $0 of deferred debt issuance costs as of September 30, 2015 and December 31, 2014, respectively.
(5)
The Wells Fargo residential investments term repurchase facility includes $36,000 of deferred debt issuance costs as of December 31, 2014.
As the result of an accounting standards update adopted on January 1, 2015 (see Note 2), the Company unlinked its previously linked transactions and disclosed affected asset, liability, income and expense balances at their gross values in its consolidated financial statements. Accordingly, the Company had no repurchase agreements being accounted for as linked transactions as of September 30, 2015.
    

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42
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RESOURCE CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
SEPTEMBER 30, 2015
(unaudited)


The assets in the following table were accounted for as linked transactions as of December 31, 2014. These linked repurchase agreements are not included in borrowings on the Company's consolidated balance sheets at that date (see Note 20).
 
 
As of December 31, 2014
 
 
Borrowings
Under Linked
Transactions (1)
 
Value of Collateral
Under Linked
Transactions
 
Number
of Positions
as Collateral
Under Linked
Transactions
 
Weighted Average
Interest Rate
of Linked
Transactions
CMBS Term Repurchase Facility
 
 
 
 
 
 
 
 
Wells Fargo Bank
 
$
4,941

 
$
6,371

 
7
 
1.67%
 
 
 
 
 
 
 
 
 
Short-Term Repurchase
Agreements - CMBS
 
 
 
 
 
 
 
 
JP Morgan Securities, LLC
 
—

 
—

 
—
 
—%
Wells Fargo Securities, LLC
 
4,108

 
6,233

 
2
 
1.37%
Deutsche Bank Securities, LLC
 
24,348

 
36,001

 
10
 
1.57%
 
 
 
 
 
 
 
 
 
Totals
 
$
33,397

 
$
48,605

 
 
 
 
The following table shows information about the amount at risk under the repurchase facilities (dollars in thousands):
 
Amount at
Risk (1)
 
Weighted Average
Maturity in Days
 
Weighted Average
Interest Rate
As of September 30, 2015:
 
 
 
 
 
CMBS Term Repurchase Facility
 
 
 
 
 
Wells Fargo Bank, National Association
$
5,894

 
19
 
1.41%
 
 
 
 
 
 
Residential Investments Term Repurchase Facility
 
 
 
 
 
Wells Fargo Bank, National Association
$
505

 
356
 
2.75%
 
 
 
 
 
 
CRE Term Repurchase Facilities
 
 
 
 
 
Wells Fargo Bank, National Association
$
49,604

 
19
 
2.21%
Morgan Stanley Bank, National Association
$
2,864

 
22
 
2.80%
 
 
 
 
 
 
Short-Term Repurchase Agreements - CMBS
 
 
 
 
 
Wells Fargo Securities, LLC
$
6,070

 
11
 
1.85%
Deutsche Bank Securities, LLC
$
20,853

 
56
 
1.73%
 
 
 
 
 
 
Residential Mortgage Financing Agreements
 
 
 
 
 
Wells Fargo Bank
$
45,289

 
365
 
2.75%
New Century Bank
$
12,119

 
334
 
2.82%

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43
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RESOURCE CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
SEPTEMBER 30, 2015
(unaudited)


As of December 31, 2014:
 
 
 
 
 
CMBS Term Repurchase Facility
 
 
 
 
 
Wells Fargo Bank, National Association
$
6,486

 
20
 
1.35%
 
 
 
 
 
 
Residential Investments Term Repurchase Facility
 
 
 
 
 
Wells Fargo Bank, National Association
$
5,017

 
1
 
1.16%
 
 
 
 
 
 
CRE Term Repurchase Facilities
 
 
 
 
 
Wells Fargo Bank, National Association
$
76,148

 
20
 
2.38%
Deutsche Bank Securities, LLC
$
13,017

 
19
 
2.78%
 
 
 
 
 
 
Short-Term Repurchase Agreements - CMBS
 
 
 
 
 
Wells Fargo Securities, LLC
$
2,127

 
9
 
1.66%
Deutsche Bank Securities, LLC
$
11,810

 
20
 
1.62%
 
 
 
 
 
 
Residential Mortgage Financing Agreements
 
 
 
 
 
New Century Bank
$
853

 
242
 
2.82%
Wells Fargo Bank
$
6,902

 
183
 
2.75%
 
(1)
Equal to the estimated fair value of securities or loans sold, plus accrued interest income, minus the sum of repurchase agreement liabilities plus accrued interest expense.
The Company is in compliance with all financial covenants as defined in the respective agreements as of September 30, 2015.
CRE – Term Repurchase Facility
On September 20, 2015, RCC Real Estate's wholly-owned subsidiary, RCC Real Estate SPE 6 ("SPE 6"), entered into a master repurchase and securities agreement (the "Morgan Stanley Facility”) with Morgan Stanley Bank, NA to finance the origination of commercial real estate loans. The Company paid a commitment fee of 0.65% of the maximum facility amount, as well as other standard costs. The Morgan Stanley Facility has a maximum capacity of $250.0 million and an initial three year term that expires on September 10, 2018 with annual one year extension options, and an interest rate of one month LIBOR plus an applicable spread ranging from 2.25% to 2.75%. Morgan Stanley charges an unused fee of 0.50% if the average daily outstanding borrowings are less than or equal to 50% of the facility amount, and of 0.25% if the amount the average daily outstanding borrowings are greater than 50% but less than 65% of the facility amount. Morgan Stanley has agreed to waive this unused fee until January 2016.

The Morgan Stanley Facility contains events of default (subject to certain materiality thresholds and grace periods) customary for this type of financing arrangement, including but not limited to: payment defaults; a change of control of SPE 6 or the Company; breaches of covenants and/or certain representations and warranties; a judgment in an amount greater than $250,000 against SPE 6 or $15.0 million in the aggregate against the Company; or a default involving the failure to pay or acceleration of a monetary obligation in excess of $250,000 of SPE 6 or $15.0 million of the Company. The remedies for such events of default are also customary for this type of transaction and include the acceleration of the principal amount outstanding under the Morgan Stanley Facility and the liquidation of assets subject to the facility by Morgan Stanley. The Company and SPE 6 were in compliance with all financial covenants under the terms of the facility as of September 30, 2015.

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RESOURCE CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
SEPTEMBER 30, 2015
(unaudited)


Residential Investments – Term Repurchase Facility
In June 2014, RSO entered into a master repurchase and securities agreement with Wells Fargo Bank, NA.  The agreement allowed for the transfer of the Company’s rights, title and interest in certain residential mortgage backed securities and certificates of trust to Wells Fargo in exchange for the transfer of funds by Wells Fargo to RSO.  The agreement also allows for Wells Fargo to transfer back to RSO those assets at either a certain date or on demand in exchange for the return of funds from RSO to Wells Fargo. Over the course of five amendments, the most recent of which was entered into with Wells Fargo on September 20, 2015, the Company extended the facility's termination date to September 20, 2016. Additionally, the amendments reduced the facility's maximum borrowing amount from a total of $285.0 million at December 31, 2014 to $30.0 million with respect to certificates of trust and zero with respect to residential mortgage backed securities. There were no other material changes to the agreement over the course of the five amendments. The facility currently charges a fee for unused balance of 25 basis points on the difference between a threshold equal to 40% of the maximum borrowing amount with respect to certificates of trust and the average daily borrowing balance of that month.
Residential Mortgage Financing Agreements
PCM has master repurchase agreements with New Century Bank d/b/a Customer's Bank ("New Century") and Wells Fargo Bank, NA ("Wells Fargo") to finance the acquisition of residential mortgage loans. In August 2015, PCM amended its agreement with New Century to extend the facility's termination date to August 29, 2016, with no other material changes made to the facility's terms. In September 2015, PCM amended its agreement with Wells Fargo to extend the facility's termination date to September 29, 2016, with no other material changes made to the facility's terms.
PCM was in compliance with all financial covenant requirements under the New Century and Wells Fargo agreements as of September 30, 2015.
Senior Secured Revolving Credit Agreement
On September 18, 2014, the Company's wholly-owned subsidiary, Northport LLC closed a $110.0 million syndicated senior secured revolving credit facility ("Northport Credit Facility") with JP Morgan as agent bank to finance the origination of middle market and syndicated loans. The availability under the Northport Credit Facility was increased to $125.0 million as of September 30, 2014 and again to $140.0 million with an additional commitment from ING Bank early in March 2015. During the second quarter 2015, the Company entered into the first and second amendments of the Northport Credit Facility which increased the original commitment from $225.0 million to $300.0 million and secured $85.0 million of additional availability, bringing the total available under the Northport Credit Facility to $225.0 million as of September 30, 2015. As of September 30, 2015, $162.0 million was outstanding on the Northport Credit Facility. Under the first amendment, both the ability to access draws on the Northport Credit Facility and maturity have been extended six months until March 31, 2018 and March 31, 2019 respectively.
Under the terms of the second amendment, the interest rate margins over LIBOR 25 basis points. Accordingly, the Northport Credit Facility bears interest rates, at the Company's election, on a per annum basis equal to (i) the applicable LIBOR rate plus 2.75% or (ii) the applicable base rate (prime rate of 3.25% as of September 30, 2015) plus 1.75%. During the six month period following September 18, 2014, the Company was charged a commitment fee on any unused balance of 0.375% per annum if the unused balance was greater than 35% of the total commitment or 0.50% per annum if it was less than 35% of the total commitment. Following that period, the commitment fee on any unused balance became 0.375% per annum if the outstanding balance is greater than 35% of the total commitment or 1.00% per annum if the outstanding balance is 35% or less of the total commitment. At September 30, 2015, there was an unused balance of $63.0 million on the facility.
Amounts available to borrow under the Credit Facility are subject to compliance with a borrowing base computation that applies different advance rates to different types of assets held by Northport LLC that are pledged as collateral. Under the Northport Credit Facility, the Company has made certain customary representations and warranties and is required to comply with various covenants, including leverage restrictions, reporting requirements and other customary requirements for similar credit facilities. At September 30, 2015, the Company is in compliance with all covenants under the agreement. The Company guarantees Northport LLC's performance of its obligations under the Northport Credit Facility.
    

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RESOURCE CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
SEPTEMBER 30, 2015
(unaudited)


Contractual maturity dates of the Company's borrowings by category and year are present in the table below:
 
Total
 
2015
 
2016
 
2017
 
2018
 
2019 and Thereafter
CDOs
$
332,382

 
$
57

 
$
—

 
$
—

 
$
—

 
$
332,325

CRE Securitizations
856,710

 
—

 
—

 
—

 
—

 
856,710

Repurchase Agreements
276,921

 
175,168

 
101,753

 
—

 
—

 
—

Unsecured Junior Subordinated Debentures
51,360

 
—

 
—

 
—

 
—

 
51,360

6.0 % Convertible Notes
109,661

 
—

 
—

 
—

 
109,661

 
—

8.0 % Convertible Notes 
95,115

 
—

 
—

 
—

 
—

 
95,115

Senior Secured Revolving Credit Facility
158,742

 
—

 
—

 
—

 


 
158,742

Total
$
1,880,891

 
$
175,225

 
$
101,753

 
$
—

 
$
109,661

 
$
1,494,252

NOTE 13 - SHARE ISSUANCE AND REPURCHASE
 
For the Nine Months Ended 
 September 30, 2015
 
Total Outstanding
 
Number of Shares
 
Weighted Average Offering Price
 
Number of Shares
 
Weighted Average Offering Price
8.50% Series A Preferred Stock
—

 
$
—

 
1,069,016

 
$
24.05

8.25% Series B Preferred Stock
139,333

 
$
22.34

 
5,740,479

 
$
23.81

8.625% Series C Preferred Stock
—

 
$
—

 
4,800,000

 
$
25.00

On or after June 14, 2017 the Company may, at its option, redeem the Series A preferred stock, in whole or part, at any time and from time to time, for cash at $25.00 per share, plus accrued and unpaid dividends, if any, to the redemption date.
On or after October 2, 2017 the Company may, at its option, redeem the Series B preferred stock, in whole or part, at any time and from time to time, for cash at $25.00 per share, plus accrued and unpaid dividends, if any, to the redemption date.
On or after July 30, 2024, the Company may, at its option, redeem the Series C preferred stock, in whole or part, at any time and from time to time, for cash at $25.00 per share, plus accrued and unpaid dividends, if any, to the redemption date.
Under a dividend reinvestment plan authorized by the board of directors on March 21, 2013, the Company is authorized to issue up to 5,000,000 shares of common stock. During the three and nine months ended September 30, 2015, the Company sold approximately 5,280 and 15,405 shares of common stock through this program, resulting in proceeds of approximately $74,000 and $261,000, respectively.
Under a share repurchase plan authorized by the board of directors on August 3, 2015, the Company is authorized to repurchase up to $50.0 million of its outstanding equity and debt securities. In August and September 2015, the Company had repurchased $15.4 million of its common stock, representing approximately 1.2 million shares or 3.5% of the outstanding balance.
NOTE 14 - SHARE-BASED COMPENSATION
The following table summarizes restricted common stock transactions:
 
Non-Employee Directors
 
Non-Employees
 
Employees
 
Total
Unvested shares as of January 1, 2015
12,301

 
453,213

 
40,396

 
505,910

Issued
13,896

 
250,365

 
43,351

 
307,612

Vested
(10,930
)
 
(98,769
)
 
(1,860
)
 
(111,559
)
Forfeited
—

 
(3,817
)
 
(3,716
)
 
(7,533
)
Unvested shares as of September 30, 2015
15,267

 
600,992

 
78,171

 
694,430


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46
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RESOURCE CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
SEPTEMBER 30, 2015
(unaudited)


The Company is required to value any unvested shares of restricted common stock granted to non-employees at the current market price.  The estimated fair value of the unvested shares of restricted stock granted during the nine months ended September 30, 2015 and 2014, including the grant date fair value of shares issued to the Company’s seven non-employee directors, was $5.9 million, and $5.0 million, respectively.
The Company reports any unvested shares of restricted common stock granted to non-employee directors at the fair value on the grant date amortized over the service period.  The amortization recognized during the three and nine months ended September 30, 2015 and 2014 was $64,000 and $193,000 and $63,000 and $192,000, respectively.
As of September 30, 2015 the total unrecognized restricted common stock expense was $3.3 million, with a weighted average amortization period remaining of 2.1 years.
The following table summarizes the restricted common stock grants during the nine months ended September 30, 2015:
Date
 
Shares (2)
 
Vesting/Year
 
Date(s)
February 3, 2015
 
1,819
 
100%
 
2/3/16
February 5, 2015
 
241,524
 
33.3%
 
2/5/16, 2/5/17, 2/5/18
February 5, 2015
 
28,818
 
33.3%
 
2/5/16, 2/5/17, 2/5/18
March 9, 2015
 
8,047
 
100%
 
3/9/16
March 12, 2015
 
1,906
 
100%
 
3/12/16
March 31, 2015
 
8,841
 
100%
 
5/15/16 (1)
June 8, 2015
 
2,124
 
100%
 
6/8/16
August 10, 2015
 
14,503
 
100%
 
3/31/16, 3/31/17, 3/31/18
September 1, 2015 (3)
 
30
 
various
 
various

(1)
In connection with a grant of restricted common stock made on September 24, 2014, the Company agreed to issue up to 17,682 additional shares of common stock if certain loan origination performance thresholds were achieved by personnel from the Company’s loan origination team.  The performance criteria are measured at the end of two annual measurement periods which began April 1, 2014.  The agreement also provided dividend equivalent rights pursuant to which the dividends that would have been paid on the shares had they been issued on the date of grant were paid at the end of each annual measurement period if the performance criteria were met.  If the performance criteria are not met, the accrued dividends will be forfeited.  As a consequence, the Company does not record the dividend equivalent rights until earned.  On March 31, 2015, the first annual measurement period ended and 8,841 shares were earned. These shares will vest over the subsequent 12 months at a rate of one-fourth per quarter. In addition, approximately $21,000 of accrued dividend equivalent rights were earned and paid. 
(2)
All shares were issued from the 2007 Plan with the exception of these shares which were issued from unregistered shares as part of the consideration for the purchase of PCM.
(3)
In connection with the Company's one-for-four reverse stock split, 30 shares of unvested shares of common stock were issued on September 1, 2015 due to rounding.
The following table summarizes the status of the Company’s vested stock options as of September 30, 2015:
Vested Options
Number of Options
 
Weighted Average Exercise Price
 
Weighted Average Remaining Contractual Term (in years)
 
Aggregate Intrinsic Value (in thousands)
Vested as of January 1, 2015
160,167

 
$
57.80

 
 
 
 
Vested
—

 
—

 
 
 
 
Exercised
—

 
—

 
 
 
 
Forfeited
—

 
—

 
 
 
 
Expired
(133,917
)
 
$
60.00

 
 
 
 
Vested as of September 30, 2015
26,250

 
$
46.60

 
3.20
 
$
—


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47
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RESOURCE CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
SEPTEMBER 30, 2015
(unaudited)


There were no options granted during the nine months ended September 30, 2015 or 2014. The outstanding stock options have a remaining contractual term of ten years.
The components of equity compensation expense for the periods presented as follows (in thousands):
 
For the Three Months Ended
 
For the Nine Months Ended
 
September 30,
 
September 30,
 
2015
 
2014
 
2015
 
2014
Options granted to Manager and non-employees
$
—

 
$
—

 
$
—

 
$
(2
)
Restricted shares granted to non-employees (1)
(466
)
 
549

 
840

 
3,762

Restricted shares granted to employees
177

 
185

 
528

 
545

Restricted shares granted to non-employee directors
64

 
64

 
193

 
192

Total equity compensation expense
$
(225
)
 
$
798

 
$
1,561

 
$
4,497


(1) Non-employees are employees of Resource America.
There were no incentive fees paid to the Manager for the three and nine months ended September 30, 2015 and 2014.
Apart from incentive compensation payable under the Management Agreement, the Company has established no formal criteria for the issuance of equity awards as of September 30, 2015.  All awards are discretionary in nature and subject to approval by the Compensation Committee of the Company's board of directors.
On October 31, 2013, the Company, through its TRS, RCC Residential, completed a business combination whereby it acquired the assets of PCM, an Atlanta based company that originates and services residential mortgage loans, for approximately $7.6 million in cash. As part of this transaction, a key employee of PCM was granted approximately $800,000 of the Company’s restricted stock. Any grants for employees of PCM are accounted for as compensation and amortized to equity compensation expense over the vesting period. Dividends declared on the stock while unvested are recorded as a general and administrative expense. Dividends declared after the stock vests are recorded as a distribution. For the three and nine months ended September 30, 2015, $177,000 and $528,000 of amortization of the stock grants were recorded to equity compensation expense and $50,000 and $136,000 of expense related to dividends on unvested shares were recorded to general and administrative expense on the Company’s consolidated statements of operations, respectively. For the three and nine months ended September 30, 2014, $163,000 and $486,000 of amortization of the stock grants were recorded to equity compensation expense and $52,000 and $156,000 of expense related to dividends on unvested shares were recorded to general and administrative expense on the Company’s consolidated statements of operations, respectively.

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RESOURCE CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
SEPTEMBER 30, 2015
(unaudited)


NOTE 15 - EARNINGS PER SHARE
On August 3, 2015, the Company's board of directors approved a one-for-four reverse stock split of its outstanding common stock which took effect after the close of business on August 31, 2015. Outstanding share and per-share amounts disclosed as of September 30, 2015 and for all other comparative periods provided have been retroactively adjusted to reflect the effects of the stock split.
The following table presents a reconciliation of basic and diluted earnings per share for the periods presented as follows (in thousands, except share and per share amounts):
 
For the Three Months Ended
 
For the Nine Months Ended
 
September 30,
 
September 30,
 
2015
 
2014
 
2015
 
2014
Basic:
 
 
 
 
 
 
 
Net income (loss) allocable to common shares
$
6,778

 
$
7,328

 
$
(14,831
)
 
$
37,121

Weighted average number of shares outstanding
32,515,226

 
32,413,591

 
32,726,194

 
31,858,595

Basic net income (loss) per share
$
0.21

 
$
0.23

 
$
(0.45
)
 
$
1.17

 
 
 
 
 
 
 
 
Diluted:
 

 
 

 
 

 
 

Net income (loss) allocable to common shares
$
6,778

 
$
7,328

 
$
(14,831
)
 
$
37,121

Weighted average number of shares outstanding
32,515,226

 
32,413,591

 
32,726,194

 
31,858,595

Additional shares due to assumed conversion of dilutive instruments
435,991

 
393,349

 
—

 
317,884

Adjusted weighted-average number of common shares outstanding
32,951,217

 
32,806,940

 
32,726,194

 
32,176,479

Diluted net income (loss) per share
$
0.21

 
$
0.22

 
$
(0.45
)
 
$
1.15

Potentially dilutive shares consisting of 0 and 349,249 shares of restricted stock are not included in the calculation of diluted net income (loss) per share for the three and nine months ended September 30, 2015, respectively, because the effect was anti-dilutive. Potentially dilutive shares consisting of 9,002,864 shares issuable in connection with the potential conversion of the Company's 6% and 8% Convertible Senior Notes (see Note 12) for both the three and nine months ended September 30, 2015, respectively, and 4,476,985 shares issuable in connection with the potential conversion of the Company's 6% Convertible Senior Notes and stock options for both the three and nine months ended September 30, 2014, were not included in the calculation of diluted net income (loss) per share because the effect was anti-dilutive.
NOTE 16 - ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME
The following table presents the changes in each component of accumulated other comprehensive income for the nine months ended September 30, 2015 (dollars in thousands):
 
Net unrealized (loss) gain on derivatives
 
Net unrealized (loss) gain on securities,
available-for-sale
 
Foreign Currency Translation
 
Accumulated other comprehensive income (loss)
January 1, 2015
$
(8,967
)
 
$
15,422

 
$
(412
)
 
$
6,043

Other comprehensive gain (loss) before reclassifications
3,424

 
(345
)
 
343

 
3,422

Amounts reclassified from accumulated other
comprehensive income
538

 
(12,139
)
 
—

 
(11,601
)
Net current-period other comprehensive income
3,962

 
(12,484
)
 
343

 
(8,179
)
Unrealized gains (losses) on available-for-sale securities allocable to non-controlling interests
—

 
2,510

 
—

 
2,510

September 30, 2015
$
(5,005
)
 
$
5,448

 
$
(69
)
 
$
374


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49
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RESOURCE CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
SEPTEMBER 30, 2015
(unaudited)


NOTE 17 - RELATED PARTY TRANSACTIONS
Relationship with Resource America and Certain of its Subsidiaries
Relationship with Resource America.  On September 19, 2013, the Audit Committee of the Board of Directors of Resource America concluded that Resource America should consolidate the financial statements of the Company, which was previously treated as an unconsolidated variable interest entity. The Audit Committee reached this conclusion after consultations with the Office of the Chief Accountant of the Securities and Exchange Commission (the “Commission”) following comments received from the staff of the Division of Corporation Finance of the Commission and the Audit Committee's discussion with the Company's management and its independent registered public accounting firm. Resource America's Audit Committee noted that consolidation of the Company was not expected to materially affect Resource America's previously reported net income attributable to common shareholders. At September 30, 2015, Resource America owned 715,398 shares, or 2.2%, of the Company’s outstanding common stock.  In addition, Resource America held 2,166 options to purchase restricted stock, which expired on March 8, 2015.
The Company is managed by the Manager, which is a wholly-owned subsidiary of Resource America, pursuant to a Management Agreement that provides for both base and incentive management fees.  For the three and nine months ended September 30, 2015, the Manager earned base management fees of approximately $6.8 million and $13.6 million, respectively. For the three and nine months ended September 30, 2014, the Manager earned base management fees of approximately $3.5 million and $9.6 million, respectively. No incentive management fees were earned for the three and nine months ended September 30, 2015 or 2014.  The Company also reimburses the Manager and Resource America for expenses, including the expenses of employees of Resource America who perform legal, accounting, due diligence and other services that outside professionals or consultants would otherwise perform, and for the wages, salaries and benefits of several Resource America personnel dedicated to the Company’s operations.  For the three and nine months ended September 30, 2015 the Company paid the Manager $1.3 million and $4.0 million, respectively, and for the three and nine months ended September 30, 2014, $1.1 million and $3.5 million, respectively, as expense reimbursements.
On November 24, 2010, the Company entered into an Investment Management Agreement with Resource Capital Markets, Inc. (“RCM”), a wholly-owned subsidiary of Resource America.  The initial agreement provided that: (a) RCM may invest up to $5.0 million of the Company’s funds, with the investable amount being adjusted by portfolio gains (losses) and collections, and offset by expenses, taxes and realized management fees, and (b) RCM can earn a management fee in any year that the net profits earned exceed a preferred return. On June 17, 2011, the Company entered into a revised Investment Management Agreement with RCM which provided an additional $8.0 million of the Company’s funds.  The management fee is 20% of the amount by which the net profits exceed the preferred return.  During the three and nine months ended September 30, 2015 and 2014, RCM earned no management fees. The portfolio began a partial liquidation during the year ended December 31, 2013 that has resulted in the outstanding portfolio balance being significantly decreased. The Company has reinvested gains from its activity and holds $3.8 million in fair market value of trading securities as of September 30, 2015, an increase of $400,000 from $3.4 million at fair market value as of December 31, 2014.  The Company and RCM also established an escrow account that allocates the net profit or net losses of the portfolio on a yearly basis based on the net asset value of the account.  RCM did not earn profits from this account during the three and nine months ended September 30, 2015 and 2014. The Company also reimburses RCM for expenses paid on the Company's behalf. For the three and nine months ended September 30, 2015, the Company paid RCM $21,000 and $118,000, respectively, as expense reimbursements. For the three and nine months ended September 30, 2014, the Company paid RCM $6,000 and $132,000, respectively, as expense reimbursements.
At September 30, 2015, the Company was indebted to the Manager for $1.8 million, comprised of base management fees of $1.0 million and expense reimbursements of $790,000.  At December 31, 2014, the Company was indebted to the Manager for $1.6 million, comprised of base management fees of $1.2 million and expense reimbursements of $480,000. At September 30, 2015, the Company was indebted to RCM under the Company’s Investment Management Agreement for $197,000, comprised entirely of expense reimbursements.  At December 31, 2014, the Company was indebted to RCM under the Company’s Investment Management Agreement for $121,000, comprised entirely of expense reimbursements. The Company's base management fee payable as well as expense reimbursements payable are recorded in accounts payable and other liabilities on the consolidated balance sheets.
During the year ended December 31, 2013, the Company, through one of its subsidiaries, began originating middle-market loans. Resource America is paid origination fees in connection with the Company’s middle-market lending operations, which fees may not exceed 2% of the loan balance for any loan originated.

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50
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RESOURCE CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
SEPTEMBER 30, 2015
(unaudited)


On November 7, 2013, the Company, through a wholly-owned subsidiary, purchased all of the membership interests in Elevation Home Loans, LLC, a start-up residential mortgage company, from an employee of Resource America for $830,000, paid in the form of 136,659 shares of restricted Company common stock.  The restricted stock vests in full on November 7, 2016, and includes dividend equivalent rights.
The Company had executed eleven and nine securitizations as of September 30, 2015 and December 31, 2014, respectively, which were structured for the Company by the Manager.  Under the Management Agreement, the Manager was not separately compensated by the Company for executing these transactions and is not separately compensated for managing the securitization's entities and their assets. The Company liquidated one of these securitizations in October 2013 and another in October 2014.
Relationship with LEAF Commercial Capital. LCC originated and managed equipment leases and notes on behalf of the Company. On March 5, 2010, the Company entered into agreements with Lease Equity Appreciation Fund II, L.P. (“LEAF II”) (an equipment leasing partnership sponsored by LEAF Financial and of which a LEAF Financial subsidiary is the general partner), pursuant to which the Company provided and funded an $8.0 million credit facility to LEAF II.  The credit facility initially had a one year term with interest at 12% per year, payable quarterly, and was secured by all the assets of LEAF II, including its entire ownership interest in LEAF II Receivables Funding.  The Company received a 1% origination fee in connection with establishing the facility.  The facility originally matured on March 3, 2011 and was extended until September 3, 2011 with a 1% extension fee paid on the outstanding loan balance.  On June 3, 2011, the Company entered into an amendment to extend the maturity to February 15, 2012 and to decrease the interest rate from 12% to 10% per annum resulting in a troubled-debt restructuring under current accounting guidance.  On February 15, 2012, the credit facility was further amended to extend the maturity to February 15, 2013 with a 1% extension fee accrued and added to the amount outstanding.  On January 11, 2013, the Company entered into another amendment to extend the maturity to February 15, 2014 with an additional 1% extension fee accrued and added to the amount outstanding. On December 17, 2013, the Company entered into another amendment to extend the maturity to February 15, 2015. At the end of 2014, the Company recorded a provision for loan loss on this loan of $1.3 million before extinguishing the loan and bringing direct financing leases in the amount of $2.1 million on the Company's books in lieu of the loan receivable. During the three and nine months ended September 30, 2015, the Company recorded a partial recovery of this provision in the amount of $0 and $216,000. As of September 30, 2015, the Company held $1.1 million of direct financing leases.
On November 16, 2011, the Company, together with LEAF Financial and LCC, entered into the SPA with Eos (see Note 3). The Company’s resulting interest is accounted for under the equity method.  For the three and nine months ended September 30, 2015 the Company recorded gains of $961,000 and $1.4 million, respectively, which was recorded in equity in earnings of unconsolidated subsidiaries on the consolidated statements of operations.  For the three and nine months ended September 30, 2014, the Company recorded a gain of $13,000 and a loss of $859,000, respectively, which was recorded in equity in earnings of unconsolidated subsidiaries on the consolidated statements of operations.  The Company’s investment in LCC was $40.8 million and $39.4 million as of September 30, 2015 and December 31, 2014, respectively.
Relationship with CVC Credit Partners. On April 17, 2012, Apidos Capital Management (“ACM”), a former subsidiary of Resource America, was sold to CVC Credit Partners, L.P. ("CVC Credit Partners"), a joint venture entity in which Resource America owns a 24% interest. CVC Credit Partners manages internally and externally originated bank loan assets on the Company’s behalf.  On February 24, 2011, a subsidiary of the Company purchased 100% of the ownership interests in Churchill Pacific Asset Management LLC ("CPAM") from Churchill Financial Holdings LLC for $22.5 million.  CPAM subsequently changed its name to RCAM. Through RCAM, the Company was initially entitled to collect senior, subordinated and incentive fees related to five CLOs holding approximately $1.9 billion in assets managed by RCAM.  RCAM is assisted by CVC Credit Partners in managing these CLOs.  CVC Credit Partners is entitled to 10% of all subordinated fees and 50% of the incentive fees received by RCAM.  For the three and nine months ended September 30, 2015, CVC Credit Partners earned subordinated fees of $173,000 and $631,000, respectively, and no incentive fees. For the three and nine months ended September 30, 2014, CVC Credit Partners earned subordinated fees of $309,000 and $1.0 million, respectively, and no incentive fees. In October 2012, the Company purchased 66.6% of the preferred equity in one of the RCAM CLOs. In May 2013, the Company purchased additional equity in this CLO, increasing its ownership percentage to 68.3%. In September 2013, this CLO was called and the notes were paid down in full. Another RCAM-managed CLO also elected to redeem its outstanding notes in whole in February 2013.

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51
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RESOURCE CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
SEPTEMBER 30, 2015
(unaudited)


In May, June and July 2013, the Company invested a total of $15.0 million in CVC Global Credit Opportunities Fund, L.P. which generally invests in assets through the Master Fund (see Note 3). The fund will pay the investment manager a quarterly management fee in advance calculated at the rate of 1.5% annually based on the balance of each limited partner's capital account. The Company's management fee was waived upon entering the agreement because the Company is a related party of CVC Credit Partners. For the three and nine months ended September 30, 2015, the Company recorded a loss of $628,000 and earnings of $293,000, respectively, which was recorded in equity in earnings of unconsolidated subsidiaries on the consolidated statements of operations. For the three and nine months ended September 30, 2014, the Company recorded earnings of $47,000 and $2.0 million, respectively, which was recorded in equity in earnings of unconsolidated subsidiaries on the consolidated statements of operations. In March 2015, the Company elected to withdraw $5.0 million from the fund. The Company's investment balance was $12.9 million as of September 30, 2015 as compared to $18.2 million as of December 31, 2014. The investment is recorded as an investment in unconsolidated entities on the Company's consolidated balance sheets using the equity method. In October 2015, another $4.0 million withdrawal was requested and received.
Relationship with Resource Real Estate. Resource Real Estate, a subsidiary of Resource America, originates, finances and manages the Company’s commercial real estate loan portfolio, including whole loans, B notes, mezzanine loans, and investments in real estate.  The Company reimburses Resource Real Estate for loan origination costs associated with all loans originated.  The Company had a receivable in the amount of $0 and $100,000 due from Resource Real Estate for loan origination costs in connection with the Company’s commercial real estate loan portfolio as of September 30, 2015 and December 31, 2014, respectively.
On August 9, 2006, the Company, through its subsidiary, RCC Real Estate, originated a loan to Lynnfield Place, a multi-family apartment property, in the amount of $22.4 million. The loan was then purchased by RREF CDO 2006-1. The loan, which was set to mature on May 9, 2018, carried an interest rate of LIBOR plus a spread of 3.50% with a LIBOR floor of 2.50%. On June 14, 2011, RCC Real Estate converted this loan, collateralized by a multi-family building, to equity. The loan was kept outstanding and was used as collateral in RREF CDO 2006-1. RREM was appointed as the asset manager as of August 1, 2011. RREM performed lease review and approval, debt service collection, loan workout, foreclosure, disposition and/or entitlements and permitting, as applicable. RREM was also responsible for engaging third parties to perform day-to-day property management, property leasing, rent collection, maintenance, and capital improvements. RREM was entitled to a monthly asset management fee equal to 4.0% of the gross receipts generated from the property. The Company incurred fees payable to RREM for the three and nine months ended September 30, 2014 in the amount of $36,000 and $105,000, respectively. There were no fees incurred for the three and nine months ended September 30, 2015, as the property was sold during the last quarter of 2014 for a gain of $1.9 million.
On December 1, 2009, the Company purchased a membership interest in RRE VIP Borrower, LLC (an unconsolidated VIE that held an interest in a real estate joint venture) from Resource America for $2.1 million, its book value.  RREM was asset manager of the venture and received a monthly asset management fee equal to 1.0% of the combined investment calculated as of the last calendar day of the month. For the three and nine months ended September 30, 2014, the Company paid RREM management fees of $0 and $6,000, respectively. There were no fees incurred for the three and nine months ended September 30, 2015, as the last property associated with the joint venture was sold in July 2014. For the three and nine months ended September 30, 2015, the Company recorded income of $0 and $46,000, respectively, which was recorded in equity in earnings of unconsolidated subsidiaries on the consolidated statements of operations. For the three and nine months ended September 30, 2014, the Company recorded income of $770,000 and $2.5 million, respectively, which was recorded in equity in earnings of unconsolidated subsidiaries on the consolidated statements of operations. The income recorded in 2015 was due to a liquidation of an existing bank account with respect to one of the properties.
On January 15, 2010, the Company loaned $2.0 million to Resource Capital Partners, Inc. (“RCP”), a wholly-owned subsidiary of Resource America, so that it could acquire a 5.0% limited partnership interest in Resource Real Estate Opportunity Fund, L.P. (“RRE Opportunity Fund”).  RCP is the general partner of the RRE Opportunity Fund.  The loan was secured by RCP’s partnership interest in the RRE Opportunity Fund.  The promissory note bore interest at a fixed rate of 8.0% per annum on the unpaid principal balance.  In the event of default, interest accrued at a rate of 5.0% in excess of the fixed rate.  Interest was payable quarterly.  Mandatory principal payments were required to the extent distributable cash or other proceeds from RRE Opportunity Fund represent a return of RCP’s capital.  The loan had an original maturity date of January 14, 2015, with two one-year extensions. RCP exercised the first option, extending the maturity to January 14, 2016. The loan balance was $558,000 at December 31, 2014, which was paid in full in April 2015.

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RESOURCE CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
SEPTEMBER 30, 2015
(unaudited)


On June 21, 2011, the Company entered into a joint venture with an unaffiliated third party to form CR SLH Partners, L.P. (“SLH Partners”) to purchase a defaulted promissory note secured by a mortgage on a multi-family apartment building.  The Company purchased a 10% equity interest in the venture and also loaned SLH Partners $7.0 million to finance the project secured by a first mortgage lien on the property. The loan had a maturity date of September 21, 2012 and bore interest at a fixed rate of 10.0% per annum on the unpaid principal balance, payable monthly. The Company received a commitment fee equal to 1.0% of the loan amount at the origination of the loan and received a $70,000 exit fee upon repayment.  On May 23, 2012, SLH Partners repaid the $7.0 million loan in its entirety. RREM was appointed as the asset manager of the venture.  RREM performed lease review and approval, debt service collection, loan workout, foreclosure, disposition and permitting, as applicable.  RREM was also responsible for engaging third parties to perform day-to-day property management, property leasing, rent collection, maintenance, and capital improvements.  RREM received an annual asset management fee equal to 2.0% of the gross receipts generated from the property.  The Company held a $975,000 preferred equity investment in SLH Partners as of December 31, 2013. The investment was sold in 2014 for a $912,000 gain, which was recorded on the Company's consolidated statements of operations in equity of earnings of unconsolidated subsidiaries.
The Company has closed the following four real estate securitization transactions, which provide financing for commercial real estate loans: RCC CRE Notes 2013, a $307.8 million securitization in December 2013; RCC 2014-CRE2, a $353.9 million securitization on July 30, 2014; RCC 2015-CRE3, a $346.2 million securitization on February 24, 2015; and RCC 2015-CRE4, a $312.9 million securitization on August 18, 2015. Resource Real Estate serves as special servicer for each transaction. With respect to each specialty service mortgage loan, Resource Real Estate receives an amount equal to the product of (a) the special servicing fee rate, 0.25% per annum, and (b) the outstanding principal balance of such specialty service mortgage loan. The servicing fee is payable monthly, on an asset-by-asset basis. The Company utilizes the brokerage services of Resource Securities, Inc. (“Resource Securities”), a wholly-owned broker-dealer subsidiary of Resource America, on a limited basis to conduct some of its asset trades. The Company paid Resource Securities placement agent fees in connection with each transaction as follows: $205,000; $175,000; $100,000; and $85,000, respectively.
In July 2014, the Company formed RCM Global Manager to invest in RCM Global, an entity formed to hold a portfolio of structured product securities. The Company contributed $15.0 million for a 63.8% membership interest in RCM Global. A five member board manages RCM Global, and all actions including purchases and sales must be approved by no less than three of the five members of the board. The portion of RCM Global that the Company does not own is presented as non-controlling interests as of the dates and for the periods presented in the Company's consolidated financial statements. All intercompany accounts and transactions have been eliminated in consolidation. In March and June 2015, the Company requested and received a proportional, in-kind distribution in certain securities held by RCM Global. The distribution of and subsequent sale of those securities by the Company through its subsidiary, RCC Residential, resulted in the realization of $4.9 million of net gains for the nine months ended September 30, 2015. As a result of these distributions, the Company's ownership interest is 46.4% as of September 30, 2015.
In September 2014, the Company contributed $17.5 million to Pelium Capital for an initial ownership interest of 80.4%. Pelium Capital is a specialized credit opportunity fund managed by Resource America. The Company funded its final commitment of $2.5 million, as of February 1, 2015. The Company will receive 10% of the carried interest in the partnership for the first five years, and can increase its interest to 20% if the Company's capital contributions aggregate $40.0 million. Resource America contributed securities valued at $2.8 million to the formation of Pelium Capital. The portion of the fund that the Company does not own is presented as non-controlling interests as of the dates and for the periods presented in the Company's consolidated financial statements. Pelium Capital was determined not to be a VIE as there was sufficient equity at risk, the Company does not have disproportionate voting rights and Pelium Capital's partners have all of the following characteristics: (1) the power to direct the activities of Pelium; (2) the obligation to absorb losses; and (3) the right to receive residual returns. However, Pelium Capital was consolidated as a result of the Company's majority ownership and the Company's unilateral kick-out rights. The non-controlling interest in Pelium Capital is owned by Resource America and outside investors. All intercompany accounts and transactions have been eliminated in consolidation. The Company's ownership interest in Pelium Capital was 80.2% as of September 30, 2015.
    
On April 10, 2015, the Company entered into two first mortgage bridge loans in the amount of $2.5 million and $3.3 million with two funds sponsored by Resource America, Resource Real Estate Investors LP and Resource Real Estate Investors
II, LP. Each loan carried an interest rate of LIBOR plus 5.75% with a LIBOR floor of 0.25%. The loans had a maturity date of May 5, 2016, with two consecutive one-year options to extend upon the first maturity date. The loan in the amount of $2.5 million was repaid in full with interest on April 29, 2015. The second loan in the amount of $3.3 million was repaid in full with interest on July 31, 2015.

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RESOURCE CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
SEPTEMBER 30, 2015
(unaudited)



On June 24, 2015, the Company committed up to $50.0 million in Pearlmark Mezzanine Realty Partners IV, L.P. ("Pearlmark Mezz IV L.P."), a Delaware limited partnership. The contractual fund manager of the fund is Pearlmark Real Estate LLC ("Pearlmark"), a Delaware limited liability company that is 50% owned by Resource America. The Company will pay Pearlmark Mezz IV L.P management fees of 1.0% on the unfunded committed capital and 1.5% on the invested capital. The Company is entitled to a management fee rebate of 25% for the first year of the fund. As of September 30, 2015, the Company is indebted for $50,000 for management fees, net of the rebate. The Company has not invested any capital as of September 30, 2015. Resource America has agreed that it will credit any such fees paid by the Company to Pearlmark against the base management fee that the Company pays to Resource America.

Relationship with Law Firm.  Until 1996, Edward E. Cohen, a director who was the Company’s Chairman from its inception until November 2009, was of counsel to Ledgewood, P.C., a law firm.  In addition, one of the Company’s executive officers, Jeffrey F. Brotman, was employed by Ledgewood until 2007.  Mr. E. Cohen receives certain debt service payments from Ledgewood related to the termination of his affiliation with Ledgewood and its redemption of his interest in the firm.  Mr. Brotman also receives certain debt service payments from Ledgewood related to the termination of his affiliation with the firm.   For the three and nine months ended September 30, 2015, the Company paid Ledgewood $13,000 and $348,000, respectively, in connection with legal services rendered to the Company. For the three and nine months ended September 30, 2014, the Company paid Ledgewood $45,000 and $202,000, respectively, in connection with legal services rendered to the Company.
NOTE 18 - DISTRIBUTIONS
For the quarter ended September 30, 2015, the Company declared and subsequently paid a dividend of $0.64 per common share.
In order to qualify as a REIT, the Company must currently distribute at least 90% of its taxable income.  In addition, the Company must distribute 100% of its taxable income in order not to be subject to corporate federal income taxes on retained income.  The Company anticipates it will distribute substantially all of its taxable income to its stockholders.  Because taxable income differs from cash flow from operations due to non-cash revenues or expenses (such as provisions for loan and lease losses and depreciation), in certain circumstances, the Company may generate operating cash flow in excess of its distributions or, alternatively, may be required to borrow to make sufficient distribution payments.
The Company’s 2015 dividends will be determined by the Company’s board of directors which will also consider the composition of any dividends declared, including the option of paying a portion in cash and the balance in additional common shares.
    

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RESOURCE CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
SEPTEMBER 30, 2015
(unaudited)


The following tables presents dividends declared (on a per share basis) for the three and nine months ended September 30, 2015 and year ended December 31, 2014:
Common Stock

 
Date Paid
 
Total
Dividend Paid
 
Dividend
Per Share
 
 
 
 
(in thousands)
 
 
2015
 
 
 
 
 
 
March 31
 
April 28
 
$
21,444

 
$
0.64

June 30
 
July 28
 
$
21,426

 
$
0.64

September 30
 
October 28
 
$
20,667

 
$
0.64

2014
 
 
 
 
 
 
March 31
 
April 28
 
$
25,921

 
$
0.80

June 30
 
July 28
 
$
26,179

 
$
0.80

September 30
 
October 28
 
$
26,629

 
$
0.80

December 31
 
January 28, 2015
 
$
26,563

 
$
0.80

Preferred Stock
Series A
 
Series B
 
Series C

 
Date Paid
 
Total
Dividend Paid
 
Dividend
Per Share
 
Date Paid
 
Total
Dividend Paid
 
Dividend
Per Share
 
Date Paid
 
Total
Dividend Paid
 
Dividend
Per Share
 
 
 
 
(in thousands)
 

 
 
 
(in thousands)
 
 
 
 
 
(in thousands)
 
 
2015
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
March 31
 
April 30
 
$
568

 
$
0.53125

 
April 30
 
$
2,960

 
$
0.515625

 
April 30
 
$
2,588

 
$
0.539063

June 30
 
July 30
 
$
568

 
$
0.53125

 
July 30
 
$
2,960

 
$
0.515625

 
July 30
 
$
2,588

 
$
0.539063

Sept. 30
 
Oct. 30
 
$
568

 
$
0.53125

 
Oct. 30
 
$
2,960

 
$
0.515625

 
Oct. 30
 
$
2,588

 
$
0.539063

2014
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
March 31
 
April 30
 
$
463

 
$
0.53125

 
April 30
 
$
2,057

 
$
0.515625

 
—
 
—

 
—

June 30
 
July 30
 
$
537

 
$
0.53125

 
July 30
 
$
2,378

 
$
0.515625

 
July 30
 
$
1,437

 
$
0.299479

September 30
 
October 30
 
$
537

 
$
0.53125

 
October 30
 
$
2,430

 
$
0.515625

 
October 30
 
$
2,588

 
$
0.539063

December 31
 
January 30, 2015
 
$
568

 
$
0.53125

 
January 30, 2015
 
$
2,888

 
$
0.515625

 
January 30, 2015
 
$
2,588

 
$
0.539063


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55
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RESOURCE CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
SEPTEMBER 30, 2015
(unaudited)


NOTE 19 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table presents information about the Company’s assets and liabilities measured at fair value on a recurring basis and indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value as follows (in thousands):
 
Level 1
 
Level 2
 
Level 3
 
Total
As of September 30, 2015:
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
Investment securities, trading
$
—

 
$
—

 
$
25,715

 
$
25,715

Investment securities available-for-sale
—

 
4,627

 
229,973

 
234,600

Loans held for sale
—

 
60,958

 
52,049

 
113,007

Derivatives
—

 
1

 
3,729

 
3,730

Total assets at fair value
$
—

 
$
65,586

 
$
311,466


$
377,052

 
 
 
 
 
 
 
 
Liabilities:
 

 
 

 
 

 
 

Derivatives
$
—

 
$
1,586

 
$
5,880

 
$
7,466

Total liabilities at fair value
$
—

 
$
1,586

 
$
5,880

 
$
7,466

 
 
 
 
 
 
 
 
As of December 31, 2014:
 

 
 

 
 

 
 

Assets:
 

 
 

 
 

 
 

Investment securities, trading
$
—

 
$
—

 
$
20,786

 
$
20,786

Investment securities available-for-sale
—

 
33,158

 
242,562

 
275,720

CMBS - linked transactions
—

 
—

 
15,367

 
15,367

     Derivatives
3,429

 
7

 
1,868

 
5,304

Total assets at fair value
$
3,429

 
$
33,165

 
$
280,583

 
$
317,177

 
 
 
 
 
 
 
 
Liabilities:
 

 
 

 
 

 
 

Moselle CLO Notes
$
—

 
$
—

 
$
68,940

 
$
68,940

Derivatives
—

 
—

 
8,476

 
8,476

Total liabilities at fair value
$
—

 
$
—

 
$
77,416

 
$
77,416

    
The Company's residential mortgage loan portfolio included in loans held for sale is comprised of both agency loans and non-agency jumbo loans. The fair values of the Company's agency loan portfolio are generally classified as Level 2 in the fair value hierarchy, as those values are determined based on quoted market prices for similar assets or upon other observable inputs. The fair values of the Company's jumbo loan portfolio are generally classified as Level 3 in the fair value hierarchy, as those values are generally based upon valuation techniques that utilize unobservable inputs that reflect the assumptions that a market participant would use in pricing those assets.

As of September 30, 2015, except for a note balance of $57,000, Moselle CLO paid off all of its outstanding CLO notes.

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56
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RESOURCE CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
SEPTEMBER 30, 2015
(unaudited)


The following table presents additional information about assets that are measured at fair value on a recurring basis for which the Company has utilized Level 3 inputs (in thousands):
 
CMBS (1)
 
ABS
 
Structured
Finance
Securities
 
Warrants
 
Interest Rate Lock Commitments
 
Loans Held for Sale
 
Total
Balance, January 1, 2015
$
185,772

 
$
72,157

 
$
20,786

 
$
898

 
$
970

 
$
83,380

 
$
363,963

Included in earnings
1,676

 
2,478

 
2,530

 
(71
)
 
25,713

 
(1,272
)
 
31,054

Unlinked transactions
33,239

 
—

 
—

 
—

 
—

 
—

 
33,239

Purchases/Originations
10,373

 
24,812

 
22,126

 
—

 
—

 
246,927

 
304,238

Sales

 
(26,292
)
 
(17,283
)
 
—

 
—

 
(270,827
)
 
(314,402
)
Paydowns
(51,918
)
 
(5,094
)
 
(1,986
)
 
—

 
—

 
(6,159
)
 
(65,157
)
Issuances
—

 
—

 
—

 
—

 
—

 
—

 
—

Settlements
—

 
(11,216
)
 
—

 
—

 
(24,595
)
 
—

 
(35,811
)
Included in OCI
(1,317
)
 
(8,568
)
 
(458
)
 
—

 
—

 
—

 
(10,343
)
Transfers into Level 3
—

 
3,871

 
—

 
—

 
—

 
—

 
3,871

Balance, September 30, 2015
$
177,825

 
$
52,148

 
$
25,715

 
$
827

 
$
2,088

 
$
52,049

 
$
310,652

 
(1) Beginning balance includes linked transactions. Due to a change in accounting guidance, as of January 1, 2015, the concept of linked transactions no longer exists.
The following table presents additional information about liabilities that are measured at fair value on a recurring basis for which the Company has utilized Level 3 inputs (in thousands):
 
Interest rate swaps
Beginning balance, January 1, 2015                                                                                                 
$
8,680

Unrealized gains - included in accumulated other comprehensive income
(3,552
)
Included in earnings
127

Ending balance, September 30, 2015                                                                                          
$
5,255

Forward sale commitments on residential mortgages had a beginning balance at January 1, 2015 of $1.2 million with $3.2 million included in earnings and settlements of $2.3 million for a remaining forwards sale commitments liability of $2.1 million at September 30, 2015.
    

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57
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RESOURCE CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
SEPTEMBER 30, 2015
(unaudited)


The following table summarizes the financial assets and liabilities measured at fair value on a nonrecurring basis and indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value as follows (in thousands):
 
Level 1
 
Level 2
 
Level 3
 
Total
As of September 30, 2015:
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
Loans held for sale
$
—

 
$
2,999

 
$
—

 
$
2,999

Impaired loans
—

 
998

 
32,500

 
33,498

Total assets at fair value
$
—

 
$
3,997

 
$
32,500

 
$
36,497

 
 
 
 
 
 
 
 
As of December 31, 2014:
 

 
 

 
 

 
 

Assets:
 

 
 

 
 

 
 

Loans held for sale
$
—

 
$
36,956

 
$
—

 
$
36,956

Impaired loans
—

 
1,678

 
137,811

 
139,489

Total assets at fair value
$
—

 
$
38,634

 
$
137,811

 
$
176,445

Loans held for sale consist of bank loans and CRE loans identified for sale due to credit concerns.  Interest on loans held for sale is recognized according to the contractual terms of the loan and included in interest income on loans.  The fair value of bank loans held for sale and impaired bank loans is based on what secondary markets are currently offering for these loans.  As such, the Company classifies these loans as nonrecurring Level 2.  For the Company’s CRE loans where there is no primary market, fair value is measured using discounted cash flow analysis and other valuation techniques and these loans are classified as nonrecurring Level 3. The amounts of nonrecurring fair value losses for specifically impaired loans for the three and nine months ended September 30, 2015 were $920,000 and $42.4 million, respectively. The amounts of nonrecurring fair value losses for specifically impaired loans for the three and nine months ended September 30, 2014 were $24,000 and $464,000, respectively. The amounts of nonrecurring fair value losses for loans held for sale for the three and nine months ended September 30, 2015 were $35,000 and $841,000, respectively. The amounts of nonrecurring fair value losses for loans held for sale for the three and nine months ended September 30, 2014 were $597,000 and $658,000, respectively.
In accordance with FASB ASC Topic 820-10-50-2-bbb, the Company is not required to disclose quantitative information with respect to unobservable inputs contained in fair value measurements that are not developed by the Company. As a consequence, the Company has not disclosed such information associated with fair values obtained from third-party pricing sources.
For Level 3 assets and liabilities measured at fair value on a recurring or non-recurring basis as of September 30, 2015, for which quantitative information with respect to unobservable inputs was available, the significant unobservable inputs used in the fair value measurements were as follows (in thousands, except were otherwise indicated) :
 
Fair Value at September 30, 2015
 
Valuation Technique
 
Significant Unobservable Inputs
 
Significant Unobservable Input Value
Interest rate swap agreements
$
5,255

 
Discounted cash flow
 
Weighted average credit spreads
 
4.83
%
Warrant
$
827

 
Option pricing model
 
Market capitalization (in millions)
 
$
146.0

 
 
 
 
 
Volatility
 
50.00
%
The Company is required to disclose the fair value of financial instruments for which it is practicable to estimate that value.  The fair values of the Company's short-term financial instruments such as cash and cash equivalents, restricted cash, principal paydown receivable, interest receivable, distribution payable, accrued interest expense, repurchase agreements and the secured revolving credit agreement approximate their carrying value on the consolidated balance sheets.  The fair values of the Company’s investment securities, trading are reported in see Note 5.  The fair values of the Company’s investment securities available-for-sale are reported in Note 6.  The fair values of the Company’s derivative instruments and linked transactions are reported in Note 20.

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RESOURCE CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
SEPTEMBER 30, 2015
(unaudited)


Loans held-for-investment:  The fair value of the Company’s Level 2 Loans held-for-investment are primarily measured using a third-party pricing service.  The fair value of the Company’s Level 3 Loans held-for-investment are measured by discounting the expected future cash flows using the current interest rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities.
Loans receivable-related party are estimated by discounting the expected future cash flows using the current interest rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities.
CDO notes are valued using the dealer quotes, typically the dealer who underwrote the CDO in which the notes are held. Moselle CLO was valued using a third party pricing specialist.
Junior subordinated notes are estimated by obtaining quoted prices for similar assets in active markets.
The fair value of the convertible notes was determined using a discounted cash flow model that discounts the expected future cash flows using current interest rates on similar debts that do not have a conversion option. The 6% Convertible Senior Notes are discounted at a rate of 7.00% and the 8% Convertible Senior Notes are discounted at a rate of 8.60%. The fair value of the CRE portfolio was determined using a discounted cash flow model that discounts the expected future cash flows at current rates at which similar loans would be made to borrowers with similar credit rating and with the same remaining maturities. Discount rates used range between 15%-25%.
The fair values of the Company’s remaining financial instruments that are not reported at fair value on the consolidated balance sheets are reported in the following table (in thousands):
 
 
 
Fair Value Measurements
 
Carrying Amount
 
Fair Value
 
Quoted Prices in Active Markets for Identical Assets of Liabilities (Level 1)
 
Significant Other Observable Inputs (Level 2)
 
Significant Unobservable Inputs (Level 3)
As of September 30, 2015:
 
 
 
 
 
 
 
 
 
Loans held-for-investment
$
2,118,978

 
$
2,107,162

 
$
—

 
$
491,206

 
$
1,615,956

CDO notes
$
1,189,092

 
$
1,076,523

 
$
—

 
$
—

 
$
1,076,523

Junior subordinated notes
$
51,360

 
$
17,854

 
$
—

 
$
—

 
$
17,854

Convertible notes
$
204,776

 
$
204,776

 
$
—

 
$
—

 
$
204,776

Repurchase agreements
$
276,921

 
$
276,921

 
$
—

 
$
—

 
$
276,921

Senior secured revolving credit agreement
$
158,742

 
$
158,742

 
$
—

 
$
—

 
$
158,742

 
 
 
 
 
 
 
 
 
 
As of December 31, 2014:
 

 
 

 
 

 
 

 
 

Loans held-for-investment
$
1,925,980

 
$
1,909,019

 
$
—

 
$
570,071

 
$
1,338,948

Loans receivable-related party
$
558

 
$
558

 
$
—

 
$
—

 
$
558

CDO notes
$
1,046,493

 
$
975,762

 
$
—

 
$
—

 
$
975,762

Junior subordinated notes
$
51,205

 
$
17,699

 
$
—

 
$
—

 
$
17,699

Convertible notes
$
108,374

 
$
108,374

 
$
—

 
$
—

 
$
108,374

Repurchase agreements
$
399,662

 
$
399,662

 
$
—

 
$
—

 
$
399,662

Senior secured revolving credit agreement
$
111,137

 
$
111,137

 
$
—

 
$
—

 
$
111,137


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59
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RESOURCE CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
SEPTEMBER 30, 2015
(unaudited)


NOTE 20 - MARKET RISK AND DERIVATIVE INSTRUMENTS
The Company is directly and indirectly affected by changes in certain market conditions. These changes in market conditions may adversely impact the Company's financial performance and are referred to as "market risks." When deemed appropriate, the Company uses derivatives as a risk management tool to mitigate the potential impact of certain market risks. The primary market risks managed by the Company through the use of derivative instruments are interest rate risk and foreign currency exchange rate risk.
The Company may hold various derivatives in the ordinary course of business, including warrants, interest rate swaps, forward contracts, options and interest rate lock commitments. Warrants are securities that give the holder the right, but not the obligation, to purchase securities from an issuer at a specific price within a specified time period. Options are contracts sold by one party to another that give the buyer the right, but not the obligation, to buy or sell a financial asset at an agreed-upon price during a certain period of time or on a specific date. Interest rate swap agreements are contracts between two parties to exchange cash flows based on specified underlying notional amounts, assets and/or indices. Forward contracts represent future commitments to either purchase or to deliver loans, securities or a quantity of a currency at a predetermined future date, at a predetermined rate or price and are used to manage interest rate risk on loan commitments and mortgage loans held for sale as well as currency risk with respect to the Company's long positions in foreign currency-denominated investment securities. Rate lock commitments represent commitments to fund loans at a specific rate and by a specified time and are used to mitigate risk of changes in interest rate in the Company's residential mortgage loan portfolio.
A significant market risk to the Company is interest rate risk.  Interest rates are highly sensitive to many factors, including governmental monetary and tax policies, domestic and international economic and political considerations and other factors beyond the Company’s control.  Changes in the general level of interest rates can affect net interest income, which is the difference between the interest income earned on interest-earning assets and the interest expense incurred in connection with the interest-bearing liabilities, by affecting the spread between the interest-earning assets and interest-bearing liabilities.  Changes in the level of interest rates also can affect the value of the Company’s interest-earning assets and the Company’s ability to realize gains from the sale of these assets.  A decline in the value of the Company’s interest-earning assets pledged as collateral for borrowings could result in the counterparties demanding additional collateral pledges or liquidation of some of the existing collateral to reduce borrowing levels.
The Company seeks to manage the extent to which net income changes as a function of changes in interest rates by matching adjustable-rate assets with variable-rate borrowings. The Company mitigates the potential impact on net income of periodic and lifetime coupon adjustment restrictions in its investment portfolio by entering into interest rate hedging agreements such as interest rate caps and interest rate swaps.
At September 30, 2015, the Company had 10 interest rate swap contracts outstanding whereby the Company paid an average fixed rate of 4.83% and received a variable rate equal to either one-month LIBOR or three-month LIBOR.  The aggregate notional amount of these contracts was $121.9 million at September 30, 2015.  The counterparties for the Company’s designated interest rate hedge contracts at such date were Credit Suisse International and Wells Fargo. The Company had master netting agreements with Credit Suisse International and Wells Fargo at September 30, 2015. Regulations promulgated under the Dodd-Frank Act mandate that the Company clear certain new interest rate swap transactions through a central counterparty. Transactions that are centrally cleared result in the Company facing a clearing house, rather than a swap dealer, as counterparty.  Central clearing requires the Company to post collateral in the form of initial and variation margin to satisfy potential future obligations.  As of September 30, 2015, the Company had centrally cleared derivative liabilities with a fair value of $333,000. The Company classifies these hedges as cash flow hedges, which are hedges that eliminate the risk of changes in the cash flows of a financial asset or liability. The Company records changes in fair value of derivatives designated and effective as cash flow hedges in other comprehensive income, and records changes in fair value of derivatives designated and ineffective as cash flow hedges in earnings.
At December 31, 2014, the Company had 10 interest rate swap contracts outstanding whereby the Company paid an average fixed rate of 5.12% and received a variable rate equal to one-month LIBOR.  The aggregate notional amount of these contracts was $124.0 million at December 31, 2014.  The counterparties for the Company’s designated interest rate hedge contracts are Credit Suisse International and Wells Fargo with which the Company has master netting agreements.

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60
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RESOURCE CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
SEPTEMBER 30, 2015
(unaudited)


The estimated fair value of the Company’s liability related to interest rate swaps was $5.3 million and $8.7 million as of September 30, 2015 and December 31, 2014, respectively.  The Company had aggregate unrealized losses of $5.3 million and $9.0 million on the interest rate swap agreements as of September 30, 2015 and December 31, 2014, respectively, which is recorded in accumulated other comprehensive income and a portion is recognized through earnings.  The amortization is reflected in interest expense in the Company’s consolidated statements of operations.  In connection with the June 2007 close of RREF CDO 2007-1, the Company realized a swap termination gain of $2.6 million, which is being amortized over the term of RREF CDO 2007-1.  The accretion is reflected in interest expense in the Company’s consolidated statements of operations.  In connection with the termination of a $53.6 million swap related to RREF CDO 2006-1 during the nine months ended September 30, 2008, the Company realized a swap termination loss of $4.2 million, which is being amortized over the term of a new $45.0 million swap.  The amortization is reflected in interest expense in the Company’s consolidated statements of operations. 
The Company is also exposed to currency exchange risk, a form of risk that arises from the change in price of one currency against another. Substantially all of the Company's revenues are transacted in U.S. dollars; however, a significant amount of the Company's capital is exposed to other currencies, primarily the Euro and the pound sterling. To address this market risk, the Company generally hedges foreign currency-denominated exposures (typically investments in debt instruments, including forecasted principal and interest payments) with currency forward contracts. The Company classifies these hedges as fair value hedges, which are hedges that eliminate the risk of changes in the fair values of assets, liabilities, and certain types of firm commitments. The Company records changes in fair value of derivatives designated and effective as fair value hedges in earnings, or OCI offset by corresponding changes in the fair values of the hedged items.
Forward contracts also contain an element of risk in that the counterparties may be unable to meet the terms of such agreements. In the event the parties to deliver commitments are unable to fulfill their obligations, the Company could potentially incur significant additional costs by replacing the positions at then current market rates. The Company manages its risk of exposure by limiting counterparties to those banks and institutions deemed appropriate by management. The Company does not expect any counterparty to default on its obligations and, therefore, the Company does not expect to incur any cost related to counterparty default.
The Company is exposed to interest rate risk on loans held for sale and interest rate lock commitments. As market interest rates increase or decrease, the fair value of mortgage loans held for sale and rate lock commitments will decline or increase accordingly. To offset this interest rate risk, the Company may enter into derivatives such as forward contracts to sell loans. The fair value of these forward sales contracts will change as market interest rates change, and the change in the value of these instruments is expected to largely, though not entirely, offset the change in fair value of loans held for sale and rate lock commitments. The objective of this activity is to minimize the exposure to losses on rate lock commitments and loans held for sale due to market interest rate fluctuations. The net effect of derivatives on earnings will depend on risk management activities and a variety of other factors, including market interest rate volatility, the amount of interest rate lock commitments that close, the ability to fill the forward contracts before expiration, and the time period required to close and sell loans.
During the warehousing phase of the Company’s investments in certain structured vehicles, the Company may enter into total return swaps to finance the Company’s exposure to assets that will ultimately be securitized. A total return swap is a swap agreement in which one party makes payments based on a set rate, while the other party makes payments based on the return of an underlying asset. Traditionally, the Company pays either an indexed or fixed interest payment to the warehousing lender and receives the net interest income and realized capital gains of the referenced portfolio of assets, generally loans, to be securitized that are owned and held by the warehousing lender. Upon the close of the warehousing period, the Company’s invested equity plus net interest and any capital gains realized during the warehousing period are returned to the Company. Additionally, upon the close of the securitization, the Company may purchase beneficial interests in the securitization at fair value.

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61
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RESOURCE CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
SEPTEMBER 30, 2015
(unaudited)


The following tables present the fair value of the Company’s derivative financial instruments as well as their classification on the Company's consolidated balance sheets and on the consolidated statements of operations for the years presented:
Fair Value of Derivative Instruments as of September 30, 2015
(in thousands)
 
Asset Derivatives
 
Notional Amount
 
Balance Sheet Location
 
Fair Value
Interest rate lock agreements
$
111,772

 
Derivatives, at fair value
 
$
2,088

Forward contracts - residential mortgage lending
$
124,483

 
Derivatives, at fair value
 
$
814

Forward contracts - foreign currency, hedging (1)(2)
$
11,127

 
Derivatives, at fair value
 
$
1

Warrants (5)
$
553

 
Derivatives, at fair value
 
$
827

 
Liability Derivatives
 
Notional Amount
 
Balance Sheet Location
 
Fair Value
Interest rate swap contracts, hedging (3)
$
121,867

 
Derivatives, at fair value
 
$
5,255

Forward contracts - residential mortgage lending
$
242,919

 
Derivatives, at fair value
 
$
2,040

Forward contracts - foreign currency, hedging (4)(2)
$
15,699

 
Derivatives, at fair value
 
$
45

Forward contracts - TBA securities
$
31,000

 
Derivatives, at fair value
 
$
126

 
 
 
 
 
 
Interest rate swap contracts
$
104,367

 
Accumulated other comprehensive (income) loss
 
$
5,004

 
(1)
Notional amount presented on currency converted basis. The notional amount of the Company's foreign currency hedging forward contracts was €10.3 million as of September 30, 2015.
(2)
Foreign currency forward contracts are accounted for as fair value hedges.
(3)
Interest rate swap contracts are accounted for as cash flow hedges.
(4)
Notional amount presented on currency converted basis. The notional amount of the Company's foreign currency hedging forward contracts was €14.5 million as of September 30, 2015.
(5)
The notional amount of the Company's warrants is the calculated number of shares available for purchase.




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62
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RESOURCE CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
SEPTEMBER 30, 2015
(unaudited)


Fair Value of Derivative Instruments as of December 31, 2014
(in thousands)
 
Asset Derivatives
 
Notional Amount
 
Balance Sheet Location
 
Fair Value
Interest rate lock agreements
$
59,467

 
Derivatives, at fair value
 
$
970

Forward contracts - residential mortgage lending
$
5,000

 
Derivatives, at fair value
 
$
7

Forward contracts - RMBS securities
$
42,614

 
Derivatives, at fair value
 
$
1,297

Forward contracts - foreign currency, hedging (1)(2)
$
54,948

 
Derivatives, at fair value
 
$
3,377

Options - U.S. Treasury futures
$
90

 
Derivatives, at fair value
 
$
52

Warrants
$
492

 
Derivatives, at fair value
 
$
898

 
Liability Derivatives
 
Notional Amount
 
Balance Sheet Location
 
Fair Value
Interest rate swap contracts, hedging (3)
$
124,017

 
Derivatives, at fair value
 
$
8,680

Interest rate lock agreements
$
798

 
Derivatives, at fair value
 
$
10

Forward contracts - residential mortgage lending
$
154,692

 
Derivatives, at fair value
 
$
1,036

Forward contracts - TBA securities
$
15,000

 
Derivatives, at fair value
 
$
47

 
 
 
 
 
 
Interest rate swap contracts
$
124,017

 
Accumulated other comprehensive (income) loss
 
$
8,680

 
(1)
Notional amount presented on currency converted basis. The notional amount of the Company's foreign currency hedging forward contracts was €45.4 million as of December 31, 2014.
(2)
Foreign currency forward contracts are accounted for as fair value hedges.
(3)
Interest rate swap contracts are accounted for as cash flow hedges.


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63
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RESOURCE CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
SEPTEMBER 30, 2015
(unaudited)


The Effect of Derivative Instruments on the Statements of Operations for the
Nine Months Ended September 30, 2015 (in thousands)
 
Derivatives
 
 
Statement of Operations Location
 
Realized and Unrealized Gain (Loss) (1)
Interest rate swap contracts, hedging
 
Interest expense
 
$
4,923

Interest rate swap contracts, hedging
 
Net realized and unrealized gain (loss) on sales of investment securities available-for-sale and loans and derivatives
 
$
(34
)
Interest rate lock agreements
 
Net realized and unrealized gain (loss) on sales of investment securities available-for-sale and loans and derivatives
 
$
1,128

Forward contracts - RMBS securities
 
Net realized and unrealized gain (loss) on sales of investment securities available-for-sale and loans and derivatives
 
$
(122
)
Forward contracts - residential mortgage lending
 
Net realized and unrealized gain (loss) on sales of investment securities available-for-sale and loans and derivatives
 
$
(197
)
Forward contracts - foreign currency, hedging
 
Net realized and unrealized gain (loss) on sales of investment securities available-for-sale and loans and derivatives
 
$
2,254

Options - U.S. Treasury futures
 
Net realized and unrealized gain (loss) on sales of investment securities available-for-sale and loans and derivatives
 
$
184

Forward contracts - TBA securities
 
Net realized and unrealized gain (loss) on sales of investment securities available-for-sale and loans and derivatives
 
$
415

 
(1)Negative values indicate a decrease to the associated consolidated statements of operations line items.

The Effect of Derivative Instruments on the Statements of Operations for the
Nine Months Ended September 30, 2014 (in thousands)
 
Derivatives
 
 
Statement of Operations Location
 
Realized and Unrealized Gain (Loss) (1)
Interest rate swap contracts
 
Interest expense
 
$
4,917

Interest rate lock agreements
 
Net realized and unrealized gain (loss) on sales of investment securities available-for-sale and loans and derivatives
 
$
733

Forward contracts - residential mortgage lending
 
Net realized and unrealized gain (loss) on sales of investment securities available-for-sale and loans and derivatives
 
$
(254
)
Forward contracts - foreign currency, hedging
 
Net realized and unrealized gain (loss) on sales of investment securities available-for-sale and loans and derivatives
 
$
2,192

Total return swap
 
Net realized and unrealized gain (loss) on sales of investment securities available-for-sale and loans and derivatives
 
$
960

Forward contracts - TBA securities
 
Net realized and unrealized gain (loss) on sales of investment securities available-for-sale and loans and derivatives
 
$
(280
)
 
(1)Negative values indicate a decrease to the associated consolidated statements of operations line items.

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64
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RESOURCE CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
SEPTEMBER 30, 2015
(unaudited)


Linked Transactions
As the result of an accounting standards update adopted on January 1, 2015 (see Note 2), the Company unlinked its previously linked transactions and disclosed affected asset, liability, income and expense balances at their gross values in its consolidated financial statements. Accordingly, the Company had no financing arrangements being accounted for as linked transactions as of September 30, 2015.
The Company's linked transactions were evaluated on a combined basis, reported as forward (derivative) instruments and presented as assets on the Company's consolidated balance sheets in the line item linked transactions, net at fair value. The fair value of linked transactions reflected the value of the underlying CMBS, linked repurchase agreement borrowings and accrued interest payable on such instruments. The Company's linked transactions were not designated as hedging instruments and, as a result, the change in the fair value and net interest income from linked transactions was reported in unrealized gain (loss) and interest income on linked transactions, net on the Company's consolidated statements of operations.
As of December 31, 2014, the Company held non-hedging linked transactions, net at fair value of $15.4 million. During the three and nine months ended September 30, 2014, the Company recorded unrealized gain and net interest income on linked transactions of $177,000 and $7.5 million, respectively.

The following table presents certain information about the components of the unrealized gain (loss) and net interest income from linked transactions, net, included in the Company's consolidated statements of operations for the periods presented as follows ( in thousands):
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2015
 
2014
 
2015
 
2014
Components of Unrealized Net (Losses) Gains and Net Interest Income
 
 
 
 
 
 
 
Income from linked transactions
 
 
 
 
 
 
 
Interest income attributable to CMBS underlying linked transactions
$
—

 
$
495

 
$
—

 
$
2,295

Interest expense attributable to linked repurchase
agreement borrowings underlying linked transactions
—

 
(107
)
 
—

 
(514
)
Change in fair value of linked transactions included in earnings
—

 
(211
)
 
—

 
5,713

Unrealized gain (loss) and net interest income from linked transactions, net
$
—

 
$
177

 
$
—

 
$
7,494

The following table summarizes the Company's investment securities, underlying linked transactions,which are carried at fair value (in thousands):
 
Amortized Cost
 
Unrealized Gains
 
Unrealized Losses
 
Fair Value
 
 
 
 
 
 
 
 
As of December 31, 2014:
 

 
 

 
 

 
 

CMBS linked transactions
$
48,138

 
$
539

 
$
(72
)
 
$
48,605

The following table summarizes the estimated maturities of the Company’s CMBS linked transactions according to their estimated weighted average life classifications (in thousands, except percentages):

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65
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RESOURCE CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
SEPTEMBER 30, 2015
(unaudited)


Weighted Average Life
Fair Value
 
Amortized Cost
 
Weighted Average Coupon
 
 
 
 
 
 
As of December 31, 2014:
 

 
 

 
 
Less than one year
$
7,834

 
$
7,775

 
5.36%
Greater than one year and less than five years
36,587

 
36,274

 
4.65%
Greater than five years and less than ten years
4,184

 
4,089

 
4.52%
Greater than ten years
—

 
—

 
—%
Total
$
48,605

 
$
48,138

 
4.66%
    
The following table shows the fair value, gross unrealized losses and the length of time the investment securities available-for-sale have been in a continuous unrealized loss position during the periods specified (in thousands):
 
Less than 12 Months
 
More than 12 Months
 
Total
 
Fair Value
 
Gross Unrealized Losses
 
Fair Value
 
Gross Unrealized Losses
 
Fair Value
 
Gross Unrealized Losses
 
 
 
 
 
 
 
 
 
 
 
 
As of December 31, 2014:
 

 
 

 
 

 
 

 
 

 
 

CMBS linked transactions
$
7,609

 
$
(57
)
 
$
777

 
$
(15
)
 
$
8,386

 
$
(72
)


The following table summarizes the Company's CMBS linked repurchase agreements (in thousands, except percentages):
 
 
As of December 31, 2014
Maturity or Repricing
 
Balance
 
Weighted Average Interest Rate
Within 30 days
 
$
33,397

 
1.56
%
>30 days to 90 days
 
—

 
—
%
Total
 
$
33,397

 
1.56
%


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66
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RESOURCE CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
SEPTEMBER 30, 2015
(unaudited)


NOTE 21 - OFFSETTING OF FINANCIAL ASSETS AND LIABILITIES
As the result of an accounting standards update adopted on January 1, 2015 (see Note 2), the Company unlinked its previously linked transactions and disclosed affected asset, liability, income and expense balances at their gross values in its consolidated financial statements. Accordingly, the Company had no financing arrangements being accounted for as linked transactions as of September 30, 2015.
The following table presents a summary of the Company's offsetting of derivative assets for the periods presented (in thousands):
 
 
 
 
 
 
 
 
(iv)
Gross Amounts Not Offset in
the Consolidated Balance Sheets
 
 
 
 
(i)
Gross Amounts of
Recognized
Assets
 
 (ii)
Gross Amounts Offset in the
Consolidated
Balance Sheets
 
(iii) = (i) - (ii)
Net Amounts of Assets Included in
the Consolidated
Balance Sheets
 
Financial
Instruments
 
Cash
Collateral
Pledged
 
(v) = (iii) - (iv)
Net Amount
As of September 30, 2015:
 
 
 
 
 
 
 
 
 
 
 
 
Derivative hedging instruments, at fair value
 
$
3,730

 
$
—

 
$
3,730

 
$
—

 
$
—

 
$
3,730

Total
 
$
3,730

 
$
—

 
$
3,730

 
$
—

 
$
—

 
$
3,730

 
 
 
 
 
 
 
 
 
 
 
 
 
As of December 31, 2014:
 
 
 
 
 
 
 
 
 
 
 
 
Derivative hedging instruments, at fair value
 
$
4,334

 
$
—

 
$
4,334

 
$
—

 
$
—

 
$
4,334

Linked transactions
 
48,764

 
33,397

 
15,367

 
—

 
—

 
15,367

Total
 
$
53,098

 
$
33,397

 
$
19,701

 
$
—

 
$
—

 
$
19,701



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67
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RESOURCE CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
SEPTEMBER 30, 2015
(unaudited)


The following table presents a summary of the Company's offsetting of financial liabilities and derivative liabilities for the periods presented as follows (in thousands):
 
 
 
 
 
 
 
 
(iv)
Gross Amounts Not Offset in
the Consolidated Balance Sheets
 
 
 
 
(i)
Gross Amounts of
Recognized
Liabilities
 
 (ii)
Gross Amounts Offset in the
Consolidated
Balance Sheets
 
(iii) = (i) - (ii)
Net Amounts of Liabilities Included in
the Consolidated
Balance Sheets
 
Financial
Instruments (1)
 
Cash
Collateral
Pledged (2)
 
(v) = (iii) - (iv)
Net Amount
As of September 30, 2015:
 
 
 
 
 
 
 
 
 
 
 
 
Derivative hedging instruments,
at fair value (3)
 
$
7,466

 
$
—

 
$
7,466

 
$
—

 
$
1,430

 
$
6,036

Repurchase agreements and term facilities (4)
 
276,921

 
—

 
276,921

 
—

 
—

 
276,921

Total
 
$
284,387

 
$
—

 
$
284,387

 
$
—

 
$
1,430

 
$
282,957

 
 
 
 
 
 
 
 
 
 
 
 
 
As of December 31, 2014:
 
 
 
 
 
 
 
 
 
 
 
 
Derivative hedging instruments,
at fair value (3)
 
$
8,466

 
$
—

 
$
8,466

 
$
—

 
$
500

 
$
7,966

Repurchase agreements and term facilities (4)
 
399,662

 
—

 
399,662

 
399,662

 
—

 
—

Linked transactions
 
33,397

 
33,397

 
—

 
—

 
—

 
 
Total
 
$
441,525

 
$
33,397

 
$
408,128

 
$
399,662

 
$
500

 
$
7,966

 
(1)
Amounts represent collateral pledged that is available to be offset against liability balances associated with term facilities, repurchase agreements and derivative transactions.
(2)
Amounts represent amounts pledged as collateral against derivative transactions.
(3)
The fair value of securities and/or cash and cash equivalents pledged against the Company's swaps was $1.4 million and $2.6 million at September 30, 2015 and December 31, 2014, respectively.
(4)
The combined fair value of securities and loans pledged against the Company's various term facilities and repurchase agreements was $422.8 million and $565.6 million at September 30, 2015 and December 31, 2014, respectively.
In the Company's consolidated balance sheets, all balances associated with repurchase agreement and derivatives transactions are presented on a gross basis.
Certain of the Company's repurchase agreement and derivative transactions are governed by underlying agreements that generally provide for a right of offset in the event of default or in the event of a bankruptcy of either party to the transaction.
NOTE 22 - COMMITMENTS AND CONTINGENCIES
From time to time, the Company may become involved in litigation on various matters, including disputes arising out of loans in the Company's portfolio and agreements to purchase or sell assets. Given the nature of the Company's business activities, the Company considers these matters to be routine and in the ordinary conduct of its business. The resolution of these matters may result in adverse judgments, fines, penalties, injunctions and other relief against the Company as well as monetary payments or other agreements and obligations.  Alternately, the Company may engage in settlement discussions on certain matters in order to avoid the additional costs of engaging in litigation.


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68
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RESOURCE CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
SEPTEMBER 30, 2015
(unaudited)


In September 2015, Daren Levin filed a putative class action in the United States District Court for the Southern District of New York on behalf of all persons who purchased Company common stock between March 2, 2015 and August 4, 2015. The complaint alleges that the Company and certain of its officers and directors materially misrepresented certain risks of the Company’s commercial loan portfolio and its processes and controls for assessing the quality of its portfolio. The complaint seeks unspecified damages as well as costs and attorneys’ fees. The Company believes the complaint is without merit and intends to defend itself vigorously.
Except as previously discussed, the Company is unaware of any contingencies arising from such routine litigation that would require accrual or disclosure in the consolidated financial statements as of September 30, 2015.

NOTE 23 - SEGMENT REPORTING

The Company has five reportable operating segments: Commercial Real Estate Lending, Commercial Finance, Middle Market Lending, Residential Mortgage Lending, and Corporate & Other. The reportable operating segments are business units that offer different products and services. The Commercial Real Estate Lending operating segment includes the Company’s activities and operations related to commercial real estate loans, commercial real estate-related securities, and investments in real estate. The Commercial Finance operating segment includes the Company’s activities and operations related to bank loans, bank loan-related securities, and direct financing leases. The Middle Market Lending operating segment includes the Company’s activities and operations related to the origination and purchase of middle market loans. The Residential Mortgage Lending operating segment includes the Company’s activities and operations related to the origination and servicing of residential mortgage loans and the investment in RMBS. The Corporate and & Other segment includes corporate level interest income, interest expense, inter-segment eliminations not allocable to any particular operating segment, and general and administrative expense.

The accounting policies of the operating segments are the same as those described in Note 2. The Company accounts for inter-segment sales and transfers as if the sales or transfers were to third parties, that is, at current market prices. Relevant expenses incurred at the Corporate & Other segment are allocated to TRS subsidiaries based on their percentage of adjusted pre-tax net income (loss), which excludes unrealized gains and losses and provisions on loan and lease losses that are specific to the periods presented.


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69
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RESOURCE CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
SEPTEMBER 30, 2015
(unaudited)


Summarized operating segment data are as follows (in thousands):
 
 
Commercial Real Estate Lending
 
Commercial Finance
 
Middle Market Lending
 
Residential Mortgage Lending
 
Corporate & Other (1)(2)(3)
 
Total (4)
For the Three Months Ended September 30, 2015:
 
 
 
 
 
 
 
 
 
 
 
 
Interest income:
 
 
 
 
 
 
 
 
 
 
 
 
External customers
 
$
25,646

 
$
3,341

 
$
8,254

 
$
1,119

 
$
—

 
$
38,360

Other
 
12

 
803

 
2

 
—

 
7

 
824

Total interest income
 
25,658

 
4,144

 
8,256

 
1,119

 
7

 
39,184

Interest expense
 
8,869

 
368

 
1,480

 
999

 
5,046

 
16,762

Net interest income
 
16,789

 
3,776

 
6,776

 
120

 
(5,039
)
 
22,422

Amortization of MSRs
 
—

 
—

 
—

 
(1,307
)
 
—

 
(1,307
)
Other income from external customers
 
—

 
1,033

 
—

 
1,540

 
17

 
2,590

Total revenues
 
16,789

 
4,809

 
6,776

 
353

 
(5,022
)
 
23,705

Less:
 
 
 
 
 
 
 
 
 
 
 
 
Segment operating expenses
 
50

 
272

 
1,240

 
71

 
1,361

 
2,994

General and administrative
 
768

 
569

 
978

 
7,297

 
1,726

 
11,338

Depreciation and amortization
 
—

 
454

 
—

 
142

 
32

 
628

Provision (recovery) for loan losses
 
(47
)
 
178

 
903

 
—

 
—

 
1,034

Equity in earnings of unconsolidated subsidiaries
 
—

 
(333
)
 
—

 
—

 
(1
)
 
(334
)
Other (income) expense
 
352

 
(2,566
)
 
147

 
(2,368
)
 
(446
)
 
(4,881
)
Income (loss) before taxes
 
15,666

 
6,235

 
3,508

 
(4,789
)
 
(7,694
)
 
12,926

Income tax (expense) benefit
 
—

 
(286
)
 
—

 
2,161

 
(79
)
 
1,796

Net income (loss)
 
$
15,666

 
$
5,949

 
$
3,508

 
$
(2,628
)
 
$
(7,773
)
 
$
14,722

 
 
 
 
 
 
 
 
 
 
 
 
 

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RESOURCE CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
SEPTEMBER 30, 2015
(unaudited)


 
 
Commercial Real Estate Lending
 
Commercial Finance
 
Middle Market Lending
 
Residential Mortgage Lending
 
Corporate & Other (1)(2)(3)
 
Total (4)
For the Three Months Ended September 30, 2014:
 
 
 
 
 
 
 
 
 
 
 
 
Interest income:
 
 
 
 
 
 
 
 
 
 
 
 
External customers
 
$
19,596

 
$
8,518

 
$
3,264

 
$
816

 
$
—

 
$
32,194

Other
 
—

 
1,586

 
—

 
—

 
61

 
1,647

Total interest income
 
19,596

 
10,104

 
3,264

 
816

 
61

 
33,841

Interest expense
 
6,501

 
1,764

 
65

 
419

 
2,759

 
11,508

Net interest income
 
13,095

 
8,340

 
3,199

 
397

 
(2,698
)
 
22,333

Amortization of MSRs
 
—

 
—

 
—

 
(423
)
 
—

 
(423
)
Other income from external customers
 
1,117

 
1,519

 
—

 
1,352

 
(87
)
 
3,901

Total revenues
 
14,212

 
9,859

 
3,199

 
1,326

 
(2,785
)
 
25,811

Less:
 
 
 
 
 
 
 
 
 
 
 
 
Segment operating expenses
 
695

 
575

 
8

 
819

 
3,002

 
5,099

General and administrative
 
347

 
1,151

 
12

 
5,132

 
1,705

 
8,347

Depreciation and amortization
 
3

 
454

 
—

 
96

 
9

 
562

Provision (recovery) for loan losses
 
803

 
663

 
—

 
(26
)
 
(1
)
 
1,439

Equity in earnings of unconsolidated subsidiaries
 
(828
)
 
(60
)
 
—

 
—

 
1

 
(887
)
Other (income) expense
 
1,758

 
2,531

 
—

 
(2,106
)
 
(5,026
)
 
(2,843
)
Income (loss) before taxes
 
11,434

 
4,545

 
3,179

 
(2,589
)
 
(2,475
)
 
14,094

Income tax (expense) benefit
 
—

 
(56
)
 
—

 
291

 
2

 
237

Net income (loss)
 
$
11,434

 
$
4,489

 
$
3,179


$
(2,298
)
 
$
(2,473
)
 
$
14,331

 
 
 
 
 
 
 
 
 
 
 
 
 
For the Nine Months Ended September 30, 2015:
 
 
 
 
 
 
 
 
 
 
 
 
Interest income:
 
 
 
 
 
 
 
 
 
 
 
 
External customers
 
$
70,237

 
$
14,499

 
$
22,089

 
$
3,465

 
$
302

 
$
110,592

Other
 
82

 
2,607

 
4

 
1

 
81

 
2,775

Total interest income
 
70,319

 
17,106

 
22,093

 
3,466

 
383

 
113,367

Interest expense
 
23,798

 
2,225

 
3,682

 
2,988

 
14,774

 
47,467

Net interest income
 
46,521

 
14,881

 
18,411

 
478

 
(14,391
)
 
65,900

Amortization of MSRs
 
—

 
—

 
—

 
(3,138
)
 
—

 
(3,138
)
Other income from external customers
 
—

 
3,398

 
—

 
6,058

 
49

 
9,505

Total revenues
 
46,521

 
18,279

 
18,411

 
3,398

 
(14,342
)
 
72,267

Less:
 
 
 
 
 
 
 
 
 
 
 
 
Segment operating expenses
 
56

 
940

 
2,444

 
982

 
7,471

 
11,893

General and administrative
 
1,517

 
2,238

 
2,262

 
22,227

 
5,745

 
33,989

Depreciation and amortization
 
—

 
1,346

 
1

 
372

 
95

 
1,814

Impairment losses
 
—

 
59

 
—

 
—

 
—

 
59

Provision (recovery) for loan losses
 
38,025

 
1,696

 
4,223

 
(110
)
 
—

 
43,834

Equity in earnings of unconsolidated subsidiaries
 
(46
)
 
(1,655
)
 
—

 
—

 
(1
)
 
(1,702
)
Other (income) expense
 
1,200

 
(883
)
 
39

 
(18,239
)
 
(12,683
)
 
(30,566
)
Income (loss) before taxes
 
5,769

 
14,538

 
9,442

 
(1,834
)
 
(14,969
)
 
12,946

Income tax (expense) benefit
 
(39
)
 
(1,782
)
 
—

 
(821
)
 
(327
)
 
(2,969
)
Net income (loss)
 
$
5,730

 
$
12,756

 
$
9,442

 
$
(2,655
)
 
$
(15,296
)
 
$
9,977

 
 
 
 
 
 
 
 
 
 
 
 


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71
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RESOURCE CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
SEPTEMBER 30, 2015
(unaudited)


 
 
Commercial Real Estate Lending
 
Commercial Finance
 
Middle Market Lending
 
Residential Mortgage Lending
 
Corporate & Other (1)(2)(3)
 
Total (4)
For the Nine Months Ended September 30, 2014:
 
 
 
 
 
 
 
 
 
 
 

Interest income:
 
 
 
 
 
 
 
 
 
 
 

External customers
 
$
55,723

 
$
22,460

 
$
6,589

 
$
1,265

 
$
—

 
$
86,037

Other
 
1

 
5,283

 
—

 
—

 
197

 
5,481

Total interest income
 
55,724

 
27,743

 
6,589

 
1,265

 
197

 
91,518

Interest expense
 
17,365

 
5,207

 
65

 
689

 
8,420

 
31,746

Net interest income
 
38,359

 
22,536

 
6,524

 
576

 
(8,223
)
 
59,772

Amortization of MSRs
 
—

 
—

 
—

 
(1,074
)
 
—

 
(1,074
)
Other income from external customers
 
7,777

 
4,876

 
—

 
3,670

 
(137
)
 
16,186

Total revenues
 
46,136

 
27,412

 
6,524

 
3,172

 
(8,360
)
 
74,884

Less:
 
 
 
 
 
 
 
 
 
 
 
 
Segment operating expenses
 
5,168

 
2,200

 
8

 
1,178

 
11,111

 
19,665

General and administrative
 
1,804

 
3,366

 
12

 
12,765

 
5,554

 
23,501

Depreciation and amortization
 
484

 
1,346

 
—

 
285

 
43

 
2,158

Provision (recovery) for loan losses
 
(3,759
)
 
1,969

 
—

 
—

 
51

 
(1,739
)
Equity in earnings of unconsolidated subsidiaries
 
(3,592
)
 
(1,146
)
 
—

 
—

 
75

 
(4,663
)
Other (income) expense
 
(6,252
)
 
(8,924
)
 
—

 
(5,844
)
 
8,156

 
(12,864
)
Income (loss) before taxes
 
52,283

 
28,601

 
6,504

 
(5,212
)
 
(33,350
)
 
48,826

Income tax (expense) benefit
 
303

 
(250
)
 
—

 
1,181

 
(567
)
 
667

Net income (loss)
 
$
52,586

 
$
28,351

 
$
6,504

 
$
(4,031
)
 
$
(33,917
)
 
$
49,493

 
(1)
Includes interest expense for the Convertible Senior Notes of $4.4 million and $13.0 million for the three and nine months ended September 30, 2015, respectively, and $2.2 million and $6.6 million for the three and nine months ended September 30, 2014, respectively.
(2)
Includes interest expense for the Unsecured Junior Subordinated Debentures of $610,000 and $1.8 million for the three and nine months ended September 30, 2015, respectively, and $601,000 and $1.8 million for the three and nine months ended September 30, 2014, respectively.
(3)
Includes general corporate expenses and inter-segment eliminations not allocable to any particular operating segment.
(4)
Net interest income ties, however the breakout between total interest income and interest expense does not tie directly to the Consolidated Statement of Operations for the three and nine months ended September 30, 2015 due to a cumulative inter-segment reclassification between interest income and interest expense.

The following table presents total assets by segment for the periods indicated (in thousands):
Total Assets
 
Commercial Real Estate Lending
 
Commercial Finance
 
Middle Market Lending
 
Residential Mortgage Lending
 
Corporate & Other (1)
 
Total
September 30, 2015
 
$
2,252,312

 
$
524,096

 
$
353,741

 
$
236,585

 
$
(580,692
)
 
$
2,786,042

December 31, 2014
 
$
1,821,461

 
$
743,086

 
$
276,642

 
$
205,491

 
$
(318,001
)
 
$
2,728,679

 
(1)
Includes inter-segment eliminations and assets not allocable to any particular operating segment.
NOTE 24 - SUBSEQUENT EVENTS
The Company has evaluated subsequent events through the filing of this report and determined that there have not been any events that have occurred that would require adjustments to or disclosures in the consolidated financial statements, except the following:

The Company has repurchased $9.9 million of its common stock, representing approximately 754,187 shares during the period October 1, 2015 through November 6, 2015, bringing the total amount repurchased to date to $25.3 million, or approximately 5.8% of the outstanding balance.


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ITEM 2 .
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
The following discussion provides information to assist you in understanding our financial condition and results of operations.  This discussion should be read in conjunction with our consolidated financial statements and related notes appearing elsewhere in this report.  This discussion contains forward-looking statements.  Actual results could differ materially from those expressed in or implied by those forward-looking statements.  Additionally, please see “Forward-Looking Statements” and “Risk Factors” for a discussion of certain risks, uncertainties and assumptions associated with those statements included in our Annual Report on Form 10-K for the year ended December 31, 2014.
We are a diversified real estate investment trust that is primarily focused on originating, holding and managing commercial mortgage loans and other commercial real estate-related debt and equity investments. We also make other commercial finance investments. We are organized and conduct our operations to qualify as a real estate investment trust, or REIT, under Subchapter M of the Internal Revenue Code of 1986, as amended.  Our objective is to provide our stockholders with total returns over time, including quarterly distributions and capital appreciation, while seeking to manage the risks associated with our investment strategies.  We invest in a combination of real estate-related assets and, to a lesser extent, higher-yielding commercial finance assets.  We have financed a substantial portion of our portfolio investments through borrowing strategies seeking to match the maturities and repricing dates of our financings with the maturities and repricing dates of those investments, and have sought to mitigate interest rate risk through derivative instruments.
We are externally managed by Resource Capital Manager, Inc., or the Manager, an indirect wholly-owned subsidiary of Resource America, Inc. (NASDAQ: REXI), or Resource America, a specialized asset management company that uses industry-specific expertise to evaluate, originate, service and manage investment opportunities through its commercial real estate, financial fund management and commercial finance operating segments. As of September 30, 2015, Resource America managed or co-managed approximately $21.7 billion of assets in these sectors.  To provide its services, the Manager draws upon Resource America, its management team and their collective investment experience.
We generate our income primarily from the spread between the revenues we receive from our assets and the cost to finance the purchase of those assets, from management of assets and from hedging interest rate risks.  We generate revenues from the interest and fees we earn on our whole loans, A notes, B notes, mezzanine debt securities, commercial mortgage-backed securities, or CMBS, bank loans, middle market loans, other asset-backed securities, or ABS, and structured note investments.  We also generate revenues from fees we receive for the management of externally originated bank loans, from our residential mortgage origination business and from our investment in an equipment leasing business.  Historically, we have used a substantial amount of leverage to enhance our returns and we have financed each of our different asset classes with different degrees of leverage.  The cost of borrowings to finance our investments is a significant part of our expenses.  Our net income depends on our ability to control these expenses relative to our revenue.  In our bank loan, CMBS and ABS portfolios, we historically have used warehouse facilities as a short-term financing source and collateralized debt obligations, or CDOs, and collateralized loan obligations, or CLOs and, to a lesser extent, other term financing as long-term financing sources.  In our commercial real estate loan portfolio, we historically have used repurchase agreements as a short-term financing source, and CDOs and, to a lesser extent, other term financing as long-term financing sources.  Our other term financing has consisted of long-term, match-funded financing provided through long-term bank financing and asset-backed financing programs, depending upon market conditions and credit availability.
The current state of moderate growth in the United States economy has allowed us to make new investments, particularly in our primary business of commercial real estate lending. During 2014 and through September 30, 2015, we have underwritten 62 new commercial real estate, or CRE, loans for a total of $1.3 billion. These loans were initially financed in part through our CRE term facilities and then financed longer-term through our newest $1.3 billion of CRE securitizations.  We also purchased 11 newly underwritten CMBS for $25.9 million during the same time period, all of which were financed through our Wells Fargo facility. In addition, we purchased 13 CMBS bonds for $74.2 million that were financed by short-term repurchase agreements. As a result of the equity market conditions discussed below, and to maintain our market presence and relationship with our borrower base, we intend to modestly grow our commercial real estate lending program, primarily by using recycled capital coupled with debt financing, principally through the $73.7 million and $320.9 million of existing capacity on our Wells Fargo term credit facilities and the $241.1 million of existing capacity on our Morgan Stanley credit facility,
    

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In the latter half of 2013, we provided funds to a middle market lending operation ran by our Manager. These initial funds were derived from proceeds of sales from a partial liquidation of our trading portfolio. Through September 30, 2015, we have made additional investments and currently hold approximately $345.4 million original principal amount of middle market loans, comprised of $276.3 million of self-originated loans and $69.1 million of bank loans purchased in the secondary market.  These investments have helped mitigate the revenues lost from the liquidation and run-off of several bank loan CLOs in which we invested. In September 2014, we closed a syndicated loan facility for our middle market loan business with an original capacity of $125.0 million and an accordion feature to expand the facility to $225.0 million.  The facility has since been modified to a capacity of $225.0 million and the accordion feature was further expanded to $300.0 million. We had drawn $162.0 million on this facility as of September 30, 2015. We expect slower growth in this business in the remainder of 2015 and intend to continue to explore strategic alternatives to maximize value for this business.
Despite our ability to access equity markets in 2014 and early 2015, during the three months ended September 30, 2015, our common shares began to trade at prices below book value and began to trade well below our book value per share. As a result of these conditions, we have sought to enhance shareholder value by instituting, on August 4, 2015, a $50.0 million common share repurchase program. Through November 3, 2015, we have repurchased approximately $25.0 million of our common shares.
Although economic conditions in the United States have improved, real estate and credit market conditions continue to affect both us and some of our borrowers. In our CRE loan portfolio, during the quarter ended June 30, 2015, we recorded a substantial allowance for loan loss on a subordinated mezzanine loan position that was acquired in 2007. The loan was originally supported by a portfolio of 13 hotel properties, most of which were luxury brand hotels. Ten of these hotels were previously sold and proceeds used to paydown senior debt. The last three luxury brand hotels are located in or near San Juan, Puerto Rico, one of which was sold in July 2015. Economic and credit disruptions in Puerto Rico culminated in the second quarter by triggering events relating to the loan that caused us to determine that the loan was impaired. The outstanding loan balance of $38.1 million was fully reserved in the quarter, and associated accrued interest of $3.0 million was reversed against interest income for a total charge to operations of $41.1 million. In our bank and middle market loan portfolios, we recorded reserves of approximately $6.1 million for the nine months ended September 30, 2015, which was primarily due to a significant increase in our middle market loan portfolio and to a specific loan which had continued credit quality deterioration and which defaulted in the second quarter of 2015. While we have recognized these losses in 2015, we believe that the credit quality on the balance of our loan portfolio is stable. Excluding the loans referred to above, only two bank loans, or $474,000, are delinquent out of a portfolio of $152.6 million; only one, or $5.0 million, of our middle market loans is currently delinquent out of a portfolio of $349.5 million; and none of our 89 CRE loans, totaling $1.7 billion, are delinquent with respect to debt service.
We have also experienced a decline in our commercial finance assets, as one of our bank loan CLOs was substantially liquidated in 2014 and another liquidated during the second quarter of 2015.  This trend resulted in a substantial decline in our net interest income from bank loans in 2014, which continued into the first nine months of 2015. We began to mitigate this trend by investing in new CLOs and European structured notes in 2014 and expect to recycle additional capital on a limited basis in similar investments during the remainder of 2015.
On October 31, 2013, we, through RCC Residential, Inc., a taxable REIT subsidiary, acquired a residential mortgage origination company, Primary Capital Mortgage LLC, or PCM, an Atlanta-based firm.  Our acquisition of PCM represents a return to the residential mortgage investment market, by providing us with our first residential mortgage origination platform. On June 30, 2014, we also closed a residential jumbo loan-backed securitization where we retained approximately $30 million of the structure's mezzanine securities, of which we sold approximately $27 million in April 2015. PCM is now licensed in 41 states, up from seven states when we acquired the business. We intend to cautiously expand the origination business, including the residential jumbo loan area, over the coming year while continuing to add technology, staff and infrastructure.
In the past, we also had at our disposal the use of recycled capital within our CLO and CDO structures to make new investments. As of September 30, 2015, our remaining bank loan CLO and two earlier real estate CDOs had ended their reinvestment periods. Additionally, our four most recent securitizations were structured as static pools and, as such, they do not have reinvestment periods. As a result, principal and interest received by these vehicles will be used to pay down their note balances and to provide distributions in accordance with their respective indentures.
As of September 30, 2015, we had allocated our invested equity capital among our targeted asset classes as follows: 69% in CRE assets, 27% in commercial finance assets and 4% in other investments. As of December 31, 2014, we had allocated our invested equity capital as follows: 67% in CRE assets, 29% in commercial finance assets and 4% in other assets. We plan to grow our equity allocation in CRE assets to a minimum 75% level.

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Results of Operations
Our net income allocable to common shares for the three and nine months ended September 30, 2015 was $6.8 million or $0.21 per share-basic ($0.21 per share-diluted) and $(14.8) million or $(0.45) per share basic ($(0.45) per share-diluted), respectively, as compared to net income allocable to common shares of $7.3 million, or $0.23 per share-basic ($0.22 per share-diluted) and $37.1 million or $1.17 per share-basic ($1.15 per share-diluted) for the three and nine months ended September 30, 2014, respectively.
Interest Income
The following tables set forth information relating to our interest income recognized for the periods presented (in thousands, except percentages):
 
 
For the Three Months Ended
 
For the Three Months Ended
 
 
September 30, 2015
 
September 30, 2014
 
 
Weighted Average
 
Weighted Average
 
 
Yield
 
Balance
 
Yield
 
Balance
Interest income:
 
 
 
 
 
 
 
 
Interest income from loans:
 
 
 
 
 
 
 
 
Residential mortgage loans
 
4.09%
 
$
98,394

 
4.93%
 
$
40,276

Bank loans
 
4.09%
 
$
164,181

 
4.59%
 
$
550,437

Middle market loans
 
9.55%
 
$
338,271

 
8.69%
 
$
146,969

Commercial real estate loans
 
5.37%
 
$
1,644,900

 
5.85%
 
$
1,141,540

 
 
 
 
 
 
 
 
 
Interest income from securities:
 
 
 
 
 
 
 
 
  CMBS-private placement
 
7.10%
 
$
182,171

 
5.52%
 
$
207,677

  ABS
 
14.07%
 
$
48,308

 
10.84%
 
$
60,416

  Corporate bonds
 
5.14%
 
$
2,455

 
5.79%
 
$
2,792

RMBS
 
5.64%
 
$
2,304

 
4.01%
 
$
32,841

 
 
 
 
 
 
 
 
 
Preference payments on structured notes 
 
14.62%
 
$
22,275

 
14.47%
 
$
43,824

 
 
For the Nine Months Ended
 
For the Nine Months Ended
 
 
September 30, 2015
 
September 30, 2014
 
 
Weighted Average
 
Weighted Average
 
 
Yield
 
Balance
 
Yield
 
Balance
Interest income:
 
 
 
 
 
 
 
 
Interest income from loans:
 
 
 
 
 
 
 
 
Residential mortgage loans
 
5.18%
 
$
84,970

 
4.72%
 
$
26,408

Bank loans
 
4.49%
 
$
248,518

 
4.55%
 
$
555,014

Middle market loans
 
9.68%
 
$
300,411

 
8.82%
 
$
98,557

Commercial real estate loans
 
5.41%
 
$
1,532,849

 
6.11%
 
$
1,029,450

 
 
 
 
 
 
 
 
 
Interest income from securities:
 
 
 
 
 
 
 
 
  CMBS-private placement
 
5.62%
 
$
189,267

 
5.86%
 
$
213,208

  ABS
 
15.74%
 
$
51,301

 
8.11%
 
$
42,281

  Corporate bonds
 
5.14%
 
$
2,455

 
7.49%
 
$
2,763

  RMBS
 
4.14%
 
$
13,374

 
4.79%
 
$
11,190

 
 
 
 
 
 
 
 
 
Preference payments on structured notes 
 
14.03%
 
$
24,830

 
19.27%
 
$
36,562


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The following tables summarize interest income for the periods indicated (in thousands, except percentages):
Type of Security
 
Weighted Average Coupon
Interest
 
Unamortized
(Discount)
Premium
 
Net
 Amortization/
Accretion
 
Interest
Income
 
Fee
Income
 
Total
For the Three Months Ended September 30, 2015:
 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage Loans
 
—
%
 
$
—

 
$
(2
)
 
$
1,007

 
$
—

 
$
1,005

Bank loans
 
3.73
%
 
$
(424
)
 
107

 
1,667

 
52

 
1,826

Middle market loans
 
9.44
%
 
$
(477
)
 
42

 
8,159

 
52

 
8,253

Commercial real estate loans
 
5.04
%
 
$
(9,071
)
 
11

 
22,109

 
298

 
22,418

   Total interest income from loans
 
 
 
 
 
158

 
32,942

 
402

 
33,502

CMBS-private placement
 
5.22
%
 
$
(1,379
)
 
826

 
2,402

 
—

 
3,228

ABS
 
13.26
%
 
$
(629
)
 
53

 
1,533

 
—

 
1,586

Corporate bonds
 
4.88
%
 
$
(35
)
 
2

 
30

 
—

 
32

RMBS
 
5.22
%
 
$
27

 
(2
)
 
22

 
—

 
20

   Total interest income from securities
 
 
 
 
 
879

 
3,987

 
—

 
4,866

Direct Financing Leases
 
N/A
 
N/A
 
—

 
(8
)
 
—

 
(8
)
   Total interest income from leasing
 
 
 
 
 
—

 
(8
)
 
—

 
(8
)
Preference payments on structured notes
 
N/A
 
N/A
 
—

 
803

 
—

 
803

Other
 
N/A
 
N/A
 
—

 
165

 
—

 
165

   Total interest income - other
 
 
 
 
 
—

 
968

 
—

 
968

Total interest income
 
 
 
 
 
$
1,037

 
$
37,889

 
$
402

 
$
39,328

 
 
 
 
 
 
 
 
 
 
 
 
 
For the Three Months Ended September 30, 2014:
 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage loans
 
—
%
 
$
—

 
$
—

 
$
497

 
$
—

 
$
497

Bank loans
 
3.85
%
 
$
(1,465
)
 
706

 
5,832

 
143

 
6,681

Middle market loans
 
8.53
%
 
(284
)
 
10

 
3,203

 
51

 
3,264

Commercial real estate loans
 
5.52
%
 
$
(5,573
)
 
10

 
16,039

 
535

 
16,584

   Total interest income from loans
 
 
 
 
 
726

 
25,571

 
729

 
27,026

CMBS-private placement
 
3.91
%
 
$
(3,609
)
 
880

 
2,132

 
—

 
3,012

ABS
 
9.79
%
 
$
(2,431
)
 
162

 
1,621

 
—

 
1,783

Corporate bonds
 
5.49
%
 
$
(42
)
 
2

 
38

 
—

 
40

RMBS
 
3.59
%
 
$
(1,876
)
 
—

 
333

 
—

 
333

   Total interest income from securities
 
 
 
 
 
1,044

 
4,124

 
—

 
5,168

Preference payments on structured notes
 
N/A
 
N/A
 
—

 
1,586

 
—

 
1,586

Other
 
N/A
 
N/A
 
—

 
61

 
—

 
61

   Total interest income - other
 
 
 
 
 
—

 
1,647

 
—

 
1,647

Total interest income
 
 
 
 
 
$
1,770

 
$
31,342

 
$
729

 
$
33,841


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Type of Security
 
Weighted Average Coupon
Interest
 
Unamortized
(Discount)
Premium
 
Net
 Amortization/
Accretion
 
Interest
Income
 
Fee
Income
 
Total
For the Nine Months Ended September 30, 2015:
 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage loans
 
—
%
 
$
—

 
$
(54
)
 
$
3,355

 
$
—

 
$
3,301

Bank loans
 
3.77
%
 
$
(424
)
 
551

 
7,387

 
443

 
8,381

Middle market loans
 
9.41
%
 
$
(477
)
 
72

 
21,442

 
547

 
22,061

Commercial real estate loans
 
5.14
%
 
$
(9,071
)
 
31

 
61,099

 
1,051

 
62,181

   Total interest income from loans
 
 
 
 
 
600

 
93,283

 
2,041

 
95,924

CMBS-private placement
 
5.08
%
 
$
(1,379
)
 
762

 
7,293

 
—

 
8,055

ABS
 
14.39
%
 
$
(629
)
 
270

 
5,655

 
—

 
5,925

Corporate bonds
 
4.88
%
 
$
(35
)
 
5

 
90

 
—

 
95

RMBS
 
4.48
%
 
$
27

 
(36
)
 
379

 
—

 
343

   Total interest income from securities
 
 
 
 
 
1,001

 
13,417

 
—

 
14,418

Direct Financing Leases
 
N/A
 
N/A
 
—

 
250

 
—

 
250

   Total interest income from leasing
 
 
 
 
 
—

 
250

 
—

 
250

Preference payments on structured notes
 
N/A
 
N/A
 
—

 
2,613

 
—

 
2,613

Other
 
N/A
 
N/A
 
—

 
306

 
—

 
306

   Total interest income - other
 
 
 
 
 
—

 
2,919

 
—

 
2,919

Total interest income
 
 
 
 
 
$
1,601

 
$
109,869

 
$
2,041

 
$
113,511

 
 
 
 
 
 
 
 
 
 
 
 
 
For the Nine Months Ended September 30, 2014:
 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage loans
 
—
%
 
$
—

 
$
—

 
$
934

 
$
—

 
$
934

Bank loans
 
3.88
%
 
$
(1,465
)
 
1,973

 
16,891

 
533

 
19,397

Middle market loans
 
8.48
%
 
$
(284
)
 
29

 
6,334

 
226

 
6,589

Commercial real estate loans
 
5.56
%
 
$
(5,573
)
 
29

 
43,968

 
2,557

 
46,554

   Total interest income from loans
 
 
 
 
 
2,031

 
68,127

 
3,316

 
73,474

CMBS-private placement
 
3.88
%
 
$
(3,609
)
 
2,104

 
7,336

 
—

 
9,440

ABS
 
6.11
%
 
$
(2,431
)
 
487

 
2,081

 
—

 
2,568

Corporate bonds
 
6.26
%
 
$
(42
)
 
25

 
130

 
—

 
155

RMBS
 
3.59
%
 
$
(1,876
)
 
—

 
400

 
—

 
400

   Total interest income from securities
 
 
 
 
 
2,616

 
9,947

 
—

 
12,563

Preference payments on structured notes
 
N/A
 
N/A
 
—

 
5,284

 
—

 
5,284

Other
 
N/A
 
N/A
 
—

 
197

 
—

 
197

   Total interest income - other
 
 
 
 
 
—

 
5,481

 
—

 
5,481

Total interest income
 
 
 
 
 
$
4,647

 
$
83,555

 
$
3,316

 
$
91,518


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For the Three Months Ended
 
 
 
 
 
September 30,
 
 
 
 
 
2015
 
2014
 
Dollar Change
 
Percent Change
Interest income:
 
 
 
 
 
 
 
  Interest income from loans:
 
 
 
 
 
 
 
    Residential mortgage loans
$
1,005

 
$
497

 
$
508

 
102
 %
    Bank loans
1,826

 
6,681

 
(4,855
)
 
(73
)%
Middle market loans
8,253

 
3,264

 
4,989

 
153
 %
    Commercial real estate loans
22,418

 
16,584

 
5,834

 
35
 %
       Total interest income from loans
33,502

 
27,026

 
6,476

 
24
 %
 
 
 
 
 
 
 
 
  Interest income from securities:
 
 
 
 
 
 
 
    CMBS-private placement
3,228

 
3,012

 
216

 
7
 %
    ABS
1,586

 
1,783

 
(197
)
 
(11
)%
    Corporate bonds
32

 
40

 
(8
)
 
(20
)%
    RMBS
20

 
333

 
(313
)
 
(94
)%
       Total interest income from securities
4,866

 
5,168

 
(302
)
 
(6
)%
 
 
 
 
 
 
 
 
Interest income from leasing:
 
 
 
 
 
 
 
Direct financing leases
(8
)
 
—

 
(8
)
 
(100
)%
Total interest income from leasing
(8
)
 
—

 
(8
)
 
(100
)%
 
 
 
 
 
 
 
 
Interest income - other:
 
 
 
 
 
 
 
   Preference payments on structured notes
803

 
1,586

 
(783
)
 
(49
)%
   Temporary investment in over-night
     repurchase agreements
165

 
61

 
104

 
170
 %
     Total interest income - other
968

 
1,647

 
(679
)
 
(41
)%
Total interest income
$
39,328

 
$
33,841

 
$
5,487

 
16
 %

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For the Nine Months Ended
 
 
 
 
 
September 30,
 
 
 
 
 
2015
 
2014
 
Dollar Change
 
Percent Change
Interest income:
 
 
 
 
 
 
 
  Interest income from loans:
 
 
 
 
 
 
 
Residential mortgage loans
$
3,301

 
$
934

 
$
2,367

 
253
 %
    Bank loans
8,381

 
19,397

 
(11,016
)
 
(57
)%
Middle market loans
22,061

 
6,589

 
15,472

 
235
 %
    Commercial real estate loans
62,181

 
46,554

 
15,627

 
34
 %
       Total interest income from loans
95,924

 
73,474

 
22,450

 
31
 %
 
 
 
 
 
 
 
 
  Interest income from securities:
 
 
 
 
 
 
 
    CMBS-private placement
8,055

 
9,440

 
(1,385
)
 
(15
)%
    ABS
5,925

 
2,568

 
3,357

 
131
 %
    Corporate bonds
95

 
155

 
(60
)
 
(39
)%
    RMBS
343

 
400

 
(57
)
 
(14
)%
       Total interest income from securities
14,418

 
12,563

 
1,855

 
15
 %
 
 
 
 
 
 
 
 
Interest income from leasing:
 
 
 
 
 
 
 
Direct financing leases
250

 
—

 
250

 
100
 %
Total interest income from leasing
250

 
—

 
250

 
100
 %
 
 
 
 
 
 
 
 
Interest income - other:
 
 
 
 
 
 
 
   Preference payments on structured notes
2,613

 
5,284

 
(2,671
)
 
(51
)%
   Temporary investment in over-night
     repurchase agreements
306

 
197

 
109

 
55
 %
     Total interest income - other
2,919

 
5,481

 
(2,562
)
 
(47
)%
Total interest income
$
113,511

 
$
91,518

 
$
21,993

 
24
 %
Three and Nine Months Ended September 30, 2015 as compared to Three and Nine Months Ended September 30, 2014
Aggregate interest income increased $5.5 million (16%) and $22.0 million (24%) to $39.3 million and $113.5 million for the three and nine months ended September 30, 2015, respectively, from $33.8 million and $91.5 million for the three and nine months ended September 30, 2014, respectively. We attribute these changes to the following:
Interest Income from Loans
Bank loans. The weighted average loan balance of our bank loan portfolio decreased by $386.3 million and $306.5 million to $164.2 million and $248.5 million for the three and nine months ended September 30, 2015, respectively, principally due to three of our CLOs, Apidos CDO I, Ltd. (“Apidos CDO I”), Moselle CLO S.A. ("Moselle CLO"), and Apidos CDO III, Ltd. (“Apidos CDO III”) liquidating in October 2014, December 2014 and June 2015, respectively. Additionally, the remaining CLO, Apidos Cinco CDO, Ltd. (“Apidos Cinco CDO”), had matured and reached the end of its reinvestment period in early 2014, and, as a result, we use any principal collected to pay down notes instead of reinvesting in new assets. The change in the weighted average yield from 4.59% and 4.55% to 4.09% and 4.49% for the three and nine months ended September 30, 2015 as compared to the three and nine months ended September 30, 2014, respectively, was primarily the result of the liquidation of Apidos CDO I in 2014 and liquidation of Apidos CDO III in June 2015.

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Middle market loans. Through focused efforts to increase the investment in our middle market lending business, the portfolio grew from a weighted average balance of $147.0 million and $98.6 million for the three and nine months ended September 30, 2014, respectively, to a weighted average balance of $338.3 million and $300.4 million for the three and nine months ended September 30, 2015, respectively. Through strategic funding of new middle market loans, the weighted average yield on investments increased from 8.69% and 8.82% for the three and nine months ended September 30, 2014, respectively, to 9.55% and 9.68% for the three and nine months ended September 30, 2015, respectively.
Commercial real estate loans. Interest income on CRE loans increased $5.8 million and $15.6 million to $22.4 million and $62.2 million for the three and nine months ended September 30, 2015, respectively, as compared to $16.6 million and $46.6 million for the three and nine months ended September 30, 2014, respectively, due primarily to an increase in the weighted average balance of loans from $1.1 billion and $1.0 billion to $1.6 billion and $1.5 billion, the income derived from the increase in loans was partially offset by a decrease in the weighted average yield from 5.85% and 6.11% to 5.37% and 5.41%, for the three and nine months ended September 30, 2015, respectively. The increase in the weighted average balance of loans is due to our origination of loans for inclusion in our three newest CRE securitizations that closed in July 2014, February 2015 and August 2015.
Interest Income from Securities 
Asset-Backed Securities, or ABS. Interest income from ABS decreased $197,000 and increased $3.4 million to $1.6 million and $5.9 million for the three and nine months ended September 30, 2015, respectively, as compared to $1.8 million and $2.6 million for the three and nine months ended September 30, 2014, respectively. The nine month increase is primarily due to the acquisitions of structured asset-backed securities by our consolidated variable interest entities, RCM Global, LLC, or RCM Global, and Pelium Capital Partners, L.P., or Pelium Capital, which significantly contributed to the increase in the weighted average balance of the ABS portfolio from $60.4 million and $42.3 million to $48.3 million and $51.3 million for the three and nine months ended September 30, 2015, respectively. These purchases also increased the weighted average yield of our ABS portfolio from 10.84% and 8.11% to 14.07% and 15.74% in three and nine months ended September 30, 2015, as these securities are higher-yielding, foreign-currency denominated CLO mezzanine and equity debt securities purchased at significant discounts to par.
Interest income - other.  Interest income - other decreased $679,000 and $2.6 million to $1.0 million and $2.9 million for the three and nine months ended September 30, 2015, respectively as compared to $1.6 million and $5.5 million for the three and nine months ended September 30, 2014, respectively. The decrease is related to the decline in interest income which resulted from sales of our investment securities available for sale in August and September 2015, partially offset by the income earned on our investment in ZWH4, LLC ("ZAIS") in 2015.
Interest Expense
The following tables set forth information relating to our interest expense incurred for the periods presented by asset class (in thousands, except percentages):
 
 
For the Three Months Ended
 
For the Three Months Ended
 
 
September 30, 2015
 
September 30, 2014
 
 
Weighted Average
 
Weighted Average
 
 
Cost of Funds
 
Balance
 
Cost of Funds
 
Balance
Interest expense:
 
 
 
 
 
 
 
 
Residential mortgage loans
 
3.25
%
 
$
87,572

 
4.52
%
 
$
29,349

Bank loans
 
0.98
%
 
$
179,371

 
1.19
%
 
$
543,078

Middle market loans
 
3.13
%
 
$
155,130

 
3.72
%
 
$
794

Commercial real estate loans
 
2.53
%
 
$
1,095,272

 
2.76
%
 
$
704,696

CMBS-private placement
 
1.58
%
 
$
81,056

 
1.47
%
 
$
46,810

RMBS
 
—
%
 
$
—

 
1.51
%
 
$
22,867

Hedging instruments
 
6.65
%
 
$
106,747

 
5.31
%
 
$
120,862

Securitized borrowings
 
—
%
 
$
5,193

 
7.85
%
 
$
6,379

Convertible senior notes
 
8.25
%
 
$
215,000

 
7.49
%
 
$
115,000

General
 
5.73
%
 
$
51,548

 
4.59
%
 
$
51,548



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For the Nine Months Ended
 
For the Nine Months Ended
 
 
September 30, 2015
 
September 30, 2014
 
 
Weighted Average
 
Weighted Average
 
 
Cost of Funds
 
Balance
 
Cost of Funds
 
Balance
Interest expense:
 
 
 
 
 
 
 
 
Residential mortgage loans
 
4.14
%
 
$
77,615

 
4.63
%
 
$
17,263

Bank loans
 
1.05
%
 
$
255,284

 
1.12
%
 
$
582,123

Middle market loans
 
3.04
%
 
$
134,588

 
3.58
%
 
$
264

Commercial real estate loans
 
2.36
%
 
$
1,018,506

 
2.58
%
 
$
637,146

CMBS-private placement
 
1.57
%
 
$
81,014

 
1.40
%
 
$
47,019

RMBS
 
5.17
%
 
$
8,403

 
1.5
%
 
$
7,790

Hedging instruments
 
5.75
%
 
$
114,926

 
5.30
%
 
$
121,685

Securitized borrowings
 
4.56
%
 
$
5,193

 
9.16
%
 
$
6,379

Convertible senior notes
 
8.22
%
 
$
210,604

 
7.68
%
 
$
115,000

General
 
5.02
%
 
$
51,548

 
4.59
%
 
$
51,548


Type of Security
 
Coupon
Interest
 
Unamortized
Deferred Debt Expense
 
Net
Amortization
 
Interest
Expense
 
Total
For the Three Months Ended September 30, 2015:
 
 
 
 
 
 
 
 
 
 
Residential mortgage loans
 
—
%
 
$
—

 
$
—

 
$
711

 
$
711

Bank loans
 
0.98
%
 
$
—

 
—

 
451

 
451

Middle market loans
 
3.13
%
 
$
3,258

 
233

 
1,247

 
1,480

Commercial real estate loans
 
1.90
%
 
$
256

 
1,713

 
5,261

 
6,974

CMBS-private placement
 
1.57
%
 
$
2

 
—

 
413

 
413

RMBS
 
—
%
 
$
—

 
—

 
—

 
—

Hedging
 
5.37
%
 
$
—

 
—

 
1,771

 
1,771

Securitized borrowings
 
—
%
 
$
—

 
—

 
(77
)
 
(77
)
Convertible senior notes
 
6.93
%
 
$
—

 
708

 
3,725

 
4,433

General
 
4.24
%
 
$
4,381

 
52

 
698

 
750

   Total interest expense
 
 
 
 
 
$
2,706

 
$
14,200

 
$
16,906

 
 
 
 
 
 
 
 
 
 
 
For the Three Months Ended September 30, 2014:
 
 
 
 
 
 
 
 
 
 
Residential mortgage loans
 
—
%
 
$
—

 
$
—

 
$
331

 
$
331

Bank loans
 
1.01
%
 
$
40

 
195

 
1,444

 
1,639

Middle market loans
 
3.72
%
 
$
2,589

 
37

 
28

 
65

Commercial real estate loans
 
1.73
%
 
$
3,422

 
1,245

 
3,430

 
4,675

CMBS-private placement
 
1.38
%
 
$
—

 
—

 
176

 
176

RMBS
 
1.15
%
 
$
—

 
—

 
88

 
88

Hedging
 
5.08
%
 
$
40

 
—

 
1,650

 
1,650

Securitized borrowings
 
—
%
 
$
—

 
—

 
125

 
125

Convertible senior notes
 
6.00
%
 
$
7,021

 
429

 
1,725

 
2,154

General
 
4.18
%
 
$
394

 
50

 
555

 
605

   Total interest expense
 
 
 
 
 
$
1,956

 
$
9,552

 
$
11,508


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Type of Security
 
Coupon Interest
 
Unamortized Deferred Debt Expense
 
Net Amortization
 
Interest Expense
 
Total
For the Nine Months Ended September 30, 2015:
 
 
 
 
 
 
 
 
 
 
Residential mortgage loans
 
—
%
 
$
—

 
$
—

 
$
2,411

 
$
2,411

Bank loans
 
0.95
%
 
$
—

 
201

 
1,852

 
2,053

Middle market loans
 
3.04
%
 
$
3,258

 
551

 
3,131

 
3,682

Commercial real estate loans
 
1.89
%
 
$
256

 
3,418

 
14,495

 
17,913

CMBS-private placement
 
1.57
%
 
$
2

 
—

 
1,211

 
1,211

RMBS
 
1.17
%
 
$
—

 
—

 
327

 
327

Hedging
 
5.28
%
 
$
—

 
—

 
4,923

 
4,923

Securitized borrowings
 
—
%
 
$
—

 
—

 
178

 
178

Convertible senior notes
 
6.91
%
 
$
—

 
2,068

 
10,886

 
12,954

General
 
4.22
%
 
$
4,381

 
155

 
1,804

 
1,959

   Total interest expense
 
 
 
 
 
$
6,393

 
$
41,218

 
$
47,611

 
 
 
 
 
 
 
 
 
 
 
 For the Nine Months Ended September 30, 2014:
 
 
 
 
 
 
 
 
 
 
Residential mortgage loans
 
—
%
 
$
—

 
$
—

 
$
600

 
$
600

Bank loans
 
0.97
%
 
$
64

 
613

 
4,289

 
4,902

Middle market loans
 
3.58
%
 
$
2,589

 
37

 
28

 
65

Commercial real estate loans
 
1.78
%
 
$
3,422

 
2,650

 
9,286

 
11,936

CMBS-private placement
 
1.37
%
 
$
—

 
12

 
500

 
512

RMBS
 
1.15
%
 
$
—

 
—

 
89

 
89

Hedging
 
5.07
%
 
$
40

 
—

 
4,917

 
4,917

Securitized borrowings
 
—
%
 
$
—

 
—

 
305

 
305

Convertible senior notes
 
6.00
%
 
$
7,021

 
1,452

 
5,175

 
6,627

General
 
4.18
%
 
$
394

 
149

 
1,644

 
1,793

   Total interest expense
 
 
 
 
 
$
4,913

 
$
26,833

 
$
31,746


 
For the Three Months Ended
 
 
 
 
 
September 30,
 
 
 
 
 
2015
 
2014
 
Dollar Change
 
Percent Change
Interest expense:
 
 
 
 
 
 
 
Residential mortgage loans
$
711

 
$
331

 
$
380

 
115
 %
Bank loans
451

 
1,639

 
(1,188
)
 
(72
)%
Middle market loans
1,480

 
65

 
1,415

 
2,177
 %
Commercial real estate loans
6,974

 
4,675

 
2,299

 
49
 %
CMBS-private placement
413

 
176

 
237

 
135
 %
RMBS
—

 
88

 
(88
)
 
(100
)%
Hedging instruments
1,771

 
1,650

 
121

 
7
 %
Securitized borrowings
(77
)
 
125

 
(202
)
 
(162
)%
Convertible senior notes
4,433

 
2,154

 
2,279

 
106
 %
General
750

 
605

 
145

 
24
 %
   Total interest expense
$
16,906

 
$
11,508

 
$
5,398

 
47
 %


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For the Nine Months Ended
 
 
 
 
 
September 30,
 
 
 
 
 
2015
 
2014
 
Dollar Change
 
Percent Change
Interest expense:
 
 
 
 
 
 
 
Residential mortgage loans
$
2,411

 
$
600

 
1,811

 
302
 %
Bank loans
2,053

 
4,902

 
(2,849
)
 
(58
)%
Middle market loans
3,682

 
65

 
3,617

 
5,565
 %
Commercial real estate loans
17,913

 
11,936

 
5,977

 
50
 %
CMBS-private placement
1,211

 
512

 
699

 
137
 %
RMBS
327

 
89

 
238

 
267
 %
Hedging instruments
4,923

 
4,917

 
6

 
—
 %
Securitized borrowings
178

 
305

 
(127
)
 
(42
)%
Convertible senior notes
12,954

 
6,627

 
6,327

 
95
 %
General
1,959

 
1,793

 
166

 
9
 %
   Total interest expense
$
47,611

 
$
31,746


$
15,865

 
50
 %
Three and Nine Months Ended September 30, 2015 as compared to Three and Nine Months Ended September 30, 2014
Aggregate interest expense increased $5.4 million and $15.9 million to $16.9 million and $47.6 million for the three and nine months ended September 30, 2015, respectively, as compared to $11.5 million and $31.7 million for the three and nine months ended September 30, 2014, respectively. We attribute this increase to the following:
Bank loans. Interest expense on bank loans decreased $1.2 million and $2.8 million to $451,000 and $2.1 million for the three and nine months ended September 30, 2015, respectively as compared to $1.6 million and $4.9 million for the three and nine months ended September 30, 2014, respectively. This was primarily due to a decrease in the weighted average note balance outstanding from $543.1 million and $582.1 million for the three and nine months ended September 30, 2014, respectively, to $179.4 million and $255.3 million for the three and nine months ended September 30, 2015, respectively, in our bank loan CLOs due to the call and liquidation of Apidos CDO I in October 2014, Moselle CLO in December 2014 and Apidos CDO III in June 2015, which resulted in the paydown of all of their outstanding notes. In addition Apidos Cinco CDO reached the end of its reinvestment period in May 2014 and, as a result, principal received from its collateral is being used to pay down the principal amounts of the notes.
Middle market loans. In September 2014, we closed on a senior revolving debt facility for our new middle market loan portfolio comprised of direct originations and syndicated loans. Interest expense on middle market loans increased $1.4 million and $3.6 million to $1.5 million and $3.7 million for the three and nine months ended September 30, 2015, respectively, as compared to $ $65,000 and $65,000 for the three and nine months ended September 30, 2014, respectively. The facility had a weighted average balance of $155.1 million and $134.6 million with a weighted average cost of funds of 3.13% and 3.04% during the three and nine months ended September 30, 2015, respectively, as compared to weighted average balance of $794,000 and $264,000 with a weighted average cost of funds of 3.72% and 3.58% during the three and nine months ended September 30, 2014, respectively. The increase in interest expense and weighted average balance is primarily a result of strategic borrowings to fund growth on the middle market platform. The decrease in cost of funds is attributable to borrowings at a more favorable LIBOR rate compared to a rate tied to the prime lending rate. As of September 30, 2015, we had approximately $162.0 million outstanding on this facility. As we focus on the middle market platform and its lending capabilities, we expect to modestly expand our use of this facility through the balance of 2015.
Commercial real estate loans. Interest expense on CRE loans increased $2.3 million and $6.0 million to $7.0 million and $17.9 million for the three and nine months ended September 30, 2015, respectively, as compared to $4.7 million and $11.9 million for the three and nine months ended September 30, 2014, respectively. This was primarily from increased borrowings from the consolidation of Resource Capital Corp. 2014-CRE2, or RCC 2014-CRE2, a securitization that closed in July 2014, as well as the consolidation of Resource Capital Corp. 2015-CRE3, or RCC 2015-CRE3, a securitization tha closed in February 2015 and the consolidation of Resource Capital Corp. 2015-CRE4, or RCC 2015-CRE4, a securitization that closed in August 2015. There was also an adjustment to accelerate deferred debt issuance costs related to the paydown of notes in RCC CRE Notes 2013. These increases were partially offset by senior note paydowns in Resource Real Estate Funding CDO 2006-1, or RREF CDO 2006-1, Resource Real Estate Funding CDO 2007-1, or RREF CDO 2007-1, and Resource Capital Corp. CRE Notes 2013, Ltd., or RCC CRE Notes 2013 as the underlying collateral paid down or paid off.

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Convertible senior notes. Interest expense on convertible senior notes increased $2.3 million and $6.3 million to $4.4 million and $13.0 million for the three and nine months ended September 30, 2015 as compared to $2.2 million and $6.6 million for the three and nine months ended September 30, 2014. The current year interest expense includes interest expense taken on our $100.0 million (at par) 8% Convertible Senior Notes, which we issued in January 2015.
Revenue
The following table sets forth information relating to our revenue incurred for the periods presented (in thousands):
 
For the Three Months Ended
 
 
 
 
 
September 30,
 
 
 
 
 
2015
 
2014
 
Dollar Change
 
Percent Change
Revenue:
 
 
 
 
 
 
 
Rental income
$
—

 
$
1,118

 
$
(1,118
)
 
(100
)%
Dividend income
17

 
16

 
1

 
6
 %
Fee income
1,266

 
2,344

 
(1,078
)
 
(46
)%
Total revenue
$
1,283

 
$
3,478

 
$
(2,195
)
 
(63
)%
 
For the Nine Months Ended
 
 
 
 
 
September 30,
 
 
 
 
 
2015
 
2014
 
Dollar Change
 
Percent Change
Revenue:
 
 
 
 
 
 
 
Rental income
$
—

 
$
7,777

 
$
(7,777
)
 
(100
)%
Dividend income
50

 
169

 
(119
)
 
(70
)%
Fee income
6,317

 
7,166

 
(849
)
 
(12
)%
Total revenue
$
6,367

 
$
15,112

 
$
(8,745
)
 
(58
)%
Three and Nine Months Ended September 30, 2015 as compared to Three and Nine Months Ended September 30, 2014
Rental income. There was no rental income for the three and nine months ended September 30, 2015. All of our rental properties were sold during 2014. We do not hold any investments in commercial real estate as of September 30, 2015.
Fee income. Fee income decreased $1.1 million and $849,000 to $1.3 million and $6.3 million for the three and nine months ended September 30, 2015. This decrease relates to a mortgage servicing rights valuation allowance on income from our mortgage servicing rights portfolio and its corresponding amortization. In addition, there is a decrease in income from the run-off of managed assets related to our investment in Resource Capital Asset Management, or RCAM, which holds asset-based, management contracts that entitle us to collect senior, subordinated, and incentive fees related to three CLO issuers.

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Operating Expenses
The following table sets forth information relating to our operating expenses incurred for the periods presented (in thousands):
 
For the Three Months Ended
 
 
 
 
 
September 30,
 
 
 
 
 
2015
 
2014
 
Dollar Change
 
Percent Change
Operating expenses:
 
 
 
 
 
 
 
Management fees − related party
$
3,252

 
$
3,606

 
$
(354
)
 
(10
)%
Equity compensation − related party
(225
)
 
798

 
(1,023
)
 
(128
)%
Rental operating expense
—

 
695

 
(695
)
 
(100
)%
Lease operating
(33
)
 
—

 
(33
)
 
(100
)%
General and administrative - Corporate
4,372

 
3,716

 
656

 
18
 %
General and administrative - PCM
6,966

 
4,631

 
2,335

 
50
 %
Depreciation and amortization
628

 
562

 
66

 
12
 %
Provision (recovery) for loan losses
1,034

 
1,439

 
(405
)
 
(28
)%
Total operating expenses
$
15,994

 
$
15,447

 
$
547

 
4
 %
 
For the Nine Months Ended
 
 
 
 
 
September 30,
 
 
 
 
 
2015
 
2014
 
Dollar Change
 
Percent Change
Operating expenses:
 
 
 
 
 
 
 
Management fees − related party
$
10,312

 
$
10,000

 
$
312

 
3
 %
Equity compensation − related party
1,561

 
4,497

 
(2,936
)
 
(65
)%
Rental operating expense
6

 
5,168

 
(5,162
)
 
(100
)%
Lease operating
14

 
—

 
14

 
100
 %
General and administrative - Corporate
13,222

 
11,305

 
1,917

 
17
 %
General and administrative - PCM
20,767

 
12,196

 
8,571

 
70
 %
Depreciation and amortization
1,814

 
2,158

 
(344
)
 
(16
)%
Net impairment losses recognized in earnings
59

 
—

 
59

 
100
 %
Provision (recovery) for loan losses
43,834

 
(1,739
)
 
45,573

 
2,621
 %
Total operating expenses
$
91,589

 
$
43,585

 
$
48,004

 
110
 %
Three and Nine Months Ended September 30, 2015 as compared to Three and Nine Months Ended September 30, 2014
Management fees − related party. Management fees-related party decreased $354,000 and increased $312,000 to $3.3 million and $10.3 million for the three and nine months ended September 30, 2015 as compared to $3.6 million and $10.0 million for the three and nine months ended September 30, 2014. This expense represents compensation in the form of base management fees and incentive management fees pursuant to our management agreement as well as fees to the manager of our structured note portfolio. The changes are described below:
•
Base management fees decreased by $355,000 and increased by $312,000 for the three and nine months ended September 30, 2015. The decrease for the three months was due to decreased stockholders' equity, a component in the formula by which base management fees are calculated, primarily as a result of our repurchase of approximately 3.5% of our outstanding shares as part of the Board authorized $50.0 million repurchase plan. The increase for the nine months was due to an increase in stockholders' equity as a result of the receipt of $30.6 million of proceeds from sales of common stock through our Dividend Reinvestment and Stock Purchase Plan, or DRIP, from January 1, 2014 through September 30, 2015. In addition, we issued approximately 388,000 shares, 2.3 million shares and 4.8 million shares of Series A preferred stock, Series B preferred stock, and Series C preferred stock, respectively, from January 1, 2014 through March 31, 2015, for which we received $175.8 million of proceeds.

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•
Incentive management fees are based upon the excess of adjusted operating earnings, as defined in the management agreement, over a variable base rate. There were no fees paid for the three or nine months ended September 30, 2015 or the three or nine months ended September 30, 2014.
•
An oversight management fee is a quarterly fee paid to Resource America to reimburse it for additional costs incurred related to our life care business, Long Term Care Conversion Funding, established for the purpose of originating and acquiring life settlement contracts. The initial agreement was provided for an annual fee of $550,000, with a two year term. We began reimbursing Resource America for these costs in 2013. In 2015, the agreement was renewed for another two year term. The oversight management fee was approximately $138,000 and $411,000 for the three and nine months ended September 30, 2015 as compared to $139,000 and $411,000 for the same period last year.
Equity compensation - related party. Equity compensation - related party decreased $1.0 million and $2.9 million to $(225,000) and $1.6 million for the three and nine months ended September 30, 2015 as compared to $798,000 and $4.5 million for the three and nine months ended September 30, 2014, respectively. These expenses relate to the amortization of annual grants of restricted common stock to our non-employee independent directors, and annual and discretionary grants of restricted stock to employees of Resource America who provide investment management services to us through our Manager as well as employees through our recently acquired residential mortgage company subsidiary. The decrease in equity compensation expense was primarily attributable to a decrease in our stock price, which directly impacts our quarterly measurement of compensation expense.
Rental operating expense. Rental operating expense decreased $695,000 and $5.2 million to $0 and $6,000 for the three and nine months ended September 30, 2015, respectively, as compared to $695,000 and $5.2 million for the three and nine months ended September 30, 2014, respectively. This decrease in expenses is due to the sale of all of our remaining properties in 2014. We held no investments in commercial real estate as of September 30, 2015.
General and administrative expense - Corporate. General and administrative expense - Corporate increased $656,000 and $1.9 million to $4.4 million and $13.2 million for the three and nine months ended September 30, 2015, respectively, as compared to $3.7 million and $11.3 million for the three and nine months ended September 30, 2014, respectively. This increase in expenses is primarily related to an increase in overall payroll costs year over year due to increased headcount, as well as legal expenses incurred pertaining to sale negotiations of one of our CRE loans.
General and administrative expense - PCM. General and administrative expense - PCM increased $2.3 million and $8.6 million to $7.0 million and $20.8 million for the three and nine months ended September 30, 2015, respectively, as compared to $4.6 million and $12.2 million for the three and nine months ended September 30, 2014, respectively. The increase reflects increased professional services and increased compensation costs to support PCM's geographic expansion during the three and nine months ended September 30, 2015. In 2015, PCM acquired licenses to operate in four additional states, California, Kansas, New Hampshire and Rhode Island, with a license application currently pending in New York.
Depreciation and amortization. Depreciation and amortization increased $66,000 and decreased $344,000 to $628,000 and $1.8 million for the three and nine months ended September 30, 2015, respectively, as compared to $562,000 and $2.2 million for the three and nine months ended September 30, 2014, respectively. The increase for the three months ended September 30, 2015 was due to PCM fixed asset acquisitions and subsequent depreciation as part of their continued expansion. The decrease for the nine months ended September 30, 2015 was primarily the result of the sale of all of our investment properties during 2014. We held no investments in commercial real estate during the three and nine months ended September 30, 2015.
    

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Provision for loan losses. Provision for loan losses decreased $405,000 and increased $45.6 million to a provision of $1.0 million and $43.8 million for the three and nine months ended September 30, 2015 as compared to a a provision of $1.4 million and a benefit of $1.7 million for the three and nine months ended September 30, 2014. The following table summarizes the information relating to our provision for loan losses for the periods presented (in thousands):
 
For the Three Months Ended
 
 
 
 
 
September 30,
 
 
 
 
 
2015
 
2014
 
Dollar Change
 
Percent Change
CRE loan portfolio
$
(47
)
 
$
803

 
$
(850
)
 
(106
)%
Bank loan portfolio
178

 
441

 
(263
)
 
(60
)%
Middle market loan portfolio
903

 
(15
)
 
918

 
6,120
 %
Residential mortgage loans
—

 
(26
)
 
26

 
100
 %
Loan receivable-related party
—

 
236

 
(236
)
 
(100
)%
Total provision for loan losses
$
1,034

 
$
1,439

 
$
(405
)
 
(28
)%
 
For the Nine Months Ended
 
 
 
 
 
September 30,
 
 
 
 
 
2015
 
2014
 
Dollar Change
 
Percent Change
CRE loan portfolio
$
38,025

 
$
(3,708
)
 
$
41,733

 
1,125
 %
Bank loan portfolio
1,912

 
983

 
929

 
95
 %
Middle market loan portfolio
4,223

 
50

 
4,173

 
8,346
 %
Residential mortgage loans
(110
)
 
—

 
(110
)
 
(100
)%
Loan receivable-related party
(216
)
 
936

 
(1,152
)
 
(123
)%
Total provision for loan losses
$
43,834

 
$
(1,739
)
 
$
45,573

 
2,621
 %
CRE loan portfolio provision - The CRE loan specific provision decreased $850,000 and increased $41.7 million for the three and nine months ended September 30, 2015. During the three months ended, we recorded a partial recovery of $47,000 on a previously reserved loan. During the nine months ended September 30, 2015, we recorded an allowance for loan loss on a subordinated mezzanine loan position that was acquired in 2007. The outstanding loan balance of $38.1 million was fully reserved and associated accrued interest of $3.0 million was reversed against interest income, for a total charge to operations of $41.1 million. The loan was originally supported by a portfolio of luxury brand hotel properties. The remaining properties were located in or near San Juan, Puerto Rico and recent economic and credit disruptions in Puerto Rico resulted in events that caused us to determine the loan was impaired and required a full reserve in June 2015.
Bank loan portfolio provision - The bank loan provision decreased by $263,000 and increased $929,000 for the three and nine months ended September 30, 2015. The principal reason for the decrease in provision for the three months ended September 30, 2015 was the sale of one loan in the first quarter of 2015  that was specifically reserved for in the prior year .  The increase in provision for the nine months ended September 30, 2015 was the recognition of additional general reserves of approximately $740,000 on two additional credits that defaulted in March and June of 2015.  Additionally, we recognized losses on positions that were subsequently sold in October 2015.  We record all such losses as an adjustment to the allowance for loan and lease losses, effectively increasing the provision for loan and lease losses. 
Middle market loan portfolio provision - The middle market loan provision increased by $918,000 and $4.2 million for the three and nine months ended September 30, 2015 due to a specific reserve taken on one position related to the oil industry due to its decline in credit quality. There was no provision on the middle market loans for the three or nine months ended September 30, 2014.
Loan receivable-related party provision - The loan receivable - related party provision decreased by $236,000 and $1.2 million for the three and nine months ended September 30, 2015 due to a recovery on losses that were previously recognized when we assumed lease collateral as payment in full of our related party loan in the fourth quarter of 2014.

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Other Income (Expense)
The following table sets forth information relating to our other income (expense) incurred for the periods presented (in thousands):
 
For the Three Months Ended
 
 
 
 
 
September 30,
 
 
 
 
 
2015
 
2014
 
Dollar Change
 
Percent Change
Other Income (Expense):
 
 
 

 
 
 
 
Equity in earnings of unconsolidated subsidiaries
$
334

 
$
887

 
$
(553
)
 
(62
)%
Net realized and unrealized gain (loss) on sales of investment securities available-for-sale and loans and derivatives
5,812

 
4,226

 
1,586

 
38
 %
Net realized and unrealized gain (loss) on investment securities, trading
(580
)
 
376

 
(956
)
 
(254
)%
Unrealized gain (loss) and net interest income on linked transactions, net
—

 
177

 
(177
)
 
(100
)%
(Loss) on reissuance/gain on extinguishment of debt
(332
)
 
(1,867
)
 
1,535

 
82
 %
(Loss) gain on sale of real estate
(19
)
 
(69
)
 
50

 
72
 %
Total other income (expense)
$
5,215

 
$
3,730

 
$
1,485

 
40
 %
 
For the Nine Months Ended
 
 
 
 
 
September 30,
 
 
 
 
 
2015
 
2014
 
Dollar Change
 
Percent Change
Other Income (Expense):
 
 
 

 
 
 
 
Equity in earnings of unconsolidated subsidiaries
$
1,702

 
$
4,663

 
$
(2,961
)
 
(63
)%
Net realized and unrealized gain (loss) on sales of investment securities available-for-sale and loans and derivatives
29,980

 
7,962

 
22,018

 
277
 %
Net realized and unrealized gain (loss) on investment securities, trading
1,773

 
(1,834
)
 
3,607

 
197
 %
Unrealized gain (loss) and net interest income on linked transactions, net
235

 
7,494

 
(7,259
)
 
(97
)%
(Loss) on reissuance/gain on extinguishment of debt
(1,403
)
 
(2,469
)
 
1,066

 
(43
)%
(Loss) gain on sale of real estate
(19
)
 
2,973

 
(2,992
)
 
(101
)%
Other income (expense)
—

 
(1,262
)
 
1,262

 
100
 %
Total other income (expense)
$
32,268

 
$
17,527

 
$
14,741

 
84
 %
Three and Nine Months Ended September 30, 2015 as compared to Three and Nine Months Ended September 30, 2014
Equity in earnings of unconsolidated subsidiaries. Equity in earnings of unconsolidated subsidiaries decreased $553,000 and $3.0 million to $334,000 and $1.7 million for the three and nine months ended September 30, 2015 as compared to $887,000 and $4.7 million for the three and nine months ended September 30, 2014, respectively. This decrease in earnings was primarily related to the properties in which we owned equity interests in a real estate joint venture. We recognized $866,000 from the sale of a property during the second quarter of 2014. We did not recognize any income from this joint venture in 2015 as all properties were sold during 2014. We also recognized $984,000 of income in our investment in School Lane House during 2014. We did not recognize any income from this investment in 2015 as the investment was sold during 2014. We also saw a substantial decrease in the valuation of our portfolio held through our equity investment, CVC Global Credit Opportunities Fund, L.P. for the three months ended September 30, 2015. This decrease was offset by an increase in income from our investment in Leaf Commercial Capital for the quarter.
    

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Net realized and unrealized gain (loss) on sales of investment securities available-for-sale and loans. Net realized and unrealized gain (loss) on investment securities available-for-sale and loans increased $1.6 million and $22.0 million to $5.8 million and $30.0 million for the three and nine months ended September 30, 2015 as compared to $4.2 million and $8.0 million for the three and nine months ended September 30, 2014. This increase is primarily related to the net gain on the sale and settlement of certain securities in the partial liquidation of our RCM Global portfolio, realized gains on foreign exchange transactions from the settlement of related derivative contracts, unrealized gains on foreign exchange transactions due to a strengthening euro and unrealized gains on interest rate lock commitments on our residential loan portfolio. These gains were offset by additional provisions for temporary impairment on PCM's mortgage servicing rights portfolio caused by a change in market interest rate assumptions compounded by a softer than expected residential mortgage loan funding pipeline.
Net realized and unrealized (loss) gain on investment securities, trading. Net realized and unrealized (loss) gain on investment securities, trading decreased $956,000 and increased $3.6 million to losses of $580,000 and a gain of $1.8 million during the three and nine months ended September 30, 2015 as compared to a gain of $376,000 and losses $1.8 million for the three and nine months ended September 30, 2014. The decrease for the three months ended September 30, 2015 is due to a decrease in the valuation of the trading securities held by Pelium Capital, our consolidated subsidiary that invests in structured securities. The increase for the nine months ended September 30, 2015 is primarily related to the unrealized and realized gains recognized by Pelium Capital in the first two quarters of 2015 from the sale of securities. We did not make an investment in Pelium Capital until September 2014, and, therefore, had no such income during the three and nine months ended September 30, 2014.
Unrealized gain (loss) and net interest income on linked transactions, net. Unrealized gain (loss) and net interest income on linked transactions, net, decreased $177,000 and $7.3 million to $0 and $235,000 for the three and nine months ended September 30, 2015 as compared to $177,000 and $7.5 million for the three and nine months ended September 30, 2014. The amounts were related to our CMBS securities that were purchased with repurchase agreements with the same counterparty from whom the securities were purchased. These transactions were entered into contemporaneously or in contemplation of each other and were presumed not to meet sale accounting criteria. We accounted for these transactions on a net basis and recorded a forward purchase commitment to purchase securities (each, a “linked transaction”) at fair value. Due to a change in accounting guidance, as of January 1, 2015, the concept of linked transactions no longer exists.
Loss on reissuance/gain on extinguishment of debt. Loss on reissuance/gain on extinguishment of debt decreased $1.5 million and $1.1 million to losses of $332,000 and $1.4 million for the three and nine months ended September 30, 2015 as compared to losses of $1.9 million and $2.5 million for the three and nine months ended September 30, 2014. The transactions that give rise to the recognition of a loss on the reissuance of debt resulted from the reissuance of previously repurchased senior and junior notes in our consolidated variable interest entities in the open market. These senior and junior notes were originally repurchased at discounts to par and represent an opportunity to provide us strategic financing at beneficial rates upon reissuance. At the date these notes were repurchased, a gain, representative of the difference between the repurchase price and the par value of the note, was recognized. Because these same notes were reissued during the three and nine months ended September 30, 2015, at a price less than par, an unrealized loss equal to the difference between the reissued price and the par value of the note was recognized in current earnings.
Other income (expense). There was no other income (expense) for the three and nine months ended September 30, 2015. During the same period in 2014, we recorded a loss on the consolidation of Life Care Funding, LLC ("LCF"), our entity which originates and acquires life settlement contracts, of $1.3 million as a result of our additional investment in and acquisition of a controlling financial interest in the company during the first quarter of 2014.
Financial Condition
Summary.
Our total assets were $2.8 billion at September 30, 2015 as compared to $2.7 billion at December 31, 2014.  The increase in total assets was principally due to the increase in CRE originations and our mortgage servicing rights portfolio, slightly offset by the run-off of assets on Apidos Cinco CDO.
Investment Portfolio.
The table below summarizes the amortized cost and net carrying amount of our investment portfolio, classified by interest rate type.  The following table includes both (i) the amortized cost of our investment portfolio and the related dollar price, which is computed by dividing amortized cost by par amount, and (ii) the net carrying amount of our investment portfolio and the related dollar price, which is computed by dividing the net carrying amount by par amount for the periods presented as follows (in thousands, except percentages):

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Amortized
Cost
 
Net Carrying Amount
 
Percent of
Portfolio
 
Weighted
Average Coupon
As of September 30, 2015
 
 
 
 
 
 
 
Loans Held for Investment:
 
 
 
 
 
 
 
Commercial real estate loans (1):
 
 
 
 
 
 
 
Whole loans
$
1,603,385

 
$
1,599,371

 
62.69
%
 
5.21%
B notes
15,964

 
15,944

 
0.62
%
 
8.68%
Mezzanine loans
45,387

 
7,307

 
0.29
%
 
9.01%
Bank loans (4)
149,633

 
148,549

 
5.82
%
 
3.72%
Middle market loans (5)
349,471

 
345,385

 
13.54
%
 
9.49%
Residential mortgage loans
2,422

 
2,422

 
0.09
%
 
4.44%
 
2,166,262

 
2,118,978

 
83.05
%
 
 
Loans held for sale (2):
 
 
 
 
 
 
 
Bank loans
2,994

 
2,994

 
0.12
%
 
1.97%
Residential mortgage loans
113,007

 
113,007

 
4.43
%
 
3.90%
 
116,001

 
116,001

 
4.55
%
 
 
Investments in Available-for-Sale Securities:
 
 
 
 
 
 
 
  CMBS-private placement
175,167

 
177,825

 
6.97
%
 
5.19%
  RMBS
2,286

 
2,320

 
0.09
%
 
5.19%
  ABS
47,110

 
52,148

 
2.04
%
 
N/A (3)
  Corporate Bonds
2,420

 
2,307

 
0.09
%
 
4.88%
 
226,983

 
234,600

 
9.19
%
 
 
Investment Securities-Trading:
 
 
 
 
 
 
 
Structured notes
29,647

 
25,715

 
1.01
%
 
N/A (3)
RMBS
—

 
—

 
—
%
 
N/A (3)
 
29,647

 
25,715

 
1.01
%
 
 
Other (non-interest bearing):
 
 
 
 
 
 
 
Property held for sale
180

 
180

 
0.01
%
 
N/A
Investment in unconsolidated entities
55,858

 
55,858

 
2.19
%
 
N/A
 
56,038

 
56,038

 
2.20
%
 
 
Total Investment Portfolio
$
2,594,931

 
$
2,551,332

 
100.00
%
 
 




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Amortized
cost
 
Net Carrying Amount
 
Percent of
portfolio
 
Weighted
average coupon
As of December 31, 2014
 
 
 
 
 
 
 
Loans Held for Investment:
 
 
 
 
 
 
 
Commercial real estate loans (1):
 
 
 
 
 
 
 
Whole loans
$
1,263,592

 
$
1,259,834

 
52.23
%
 
5.33%
B notes
16,072

 
16,017

 
0.66
%
 
8.68%
Mezzanine loans
67,366

 
67,136

 
2.78
%
 
7.44%
Bank loans (4)
330,648

 
330,078

 
13.69
%
 
3.70%
Middle market loans (5)
250,113

 
250,113

 
10.37
%
 
8.35%
Residential mortgage loans
2,802

 
2,802

 
0.12
%
 
4.57%
Loans receivable-related party
558

 
558

 
0.02
%
 
4.62%
 
1,931,151

 
1,926,538

 
79.87
%
 
 
Loans held for sale (2):
 
 
 
 
 
 
 
Bank loans
282

 
282

 
0.01
%
 
3.76%
Residential mortgage loans
113,393

 
113,393

 
4.70
%
 
4.04%
 
113,675

 
113,675

 
4.71
%
 
 
Investments in Available-for-Sale Securities:
 
 
 
 
 
 
 
  CMBS-private placement
168,669

 
170,405

 
7.06
%
 
4.78%
  CMBS-linked transactions
14,900

 
15,367

 
0.64
%
 
5.44%
  RMBS
29,814

 
30,751

 
1.28
%
 
3.17%
  ABS
55,617

 
72,157

 
2.99
%
 
N/A (3)
 Corporate Bonds
2,415

 
2,407

 
0.10
%
 
4.88%
 
271,415

 
291,087

 
12.07
%
 
 
Investment Securities-Trading:
 
 
 
 
 
 
 
Structured notes
23,319

 
20,786

 
0.86
%
 
N/A (3)
RMBS
1,896

 
—

 
—
%
 
N/A (3)
 
25,215

 
20,786

 
0.86
%
 
 
Other (non-interest bearing):
 
 
 
 
 
 
 
Property held for sale
180

 
180

 
0.01
%
 
N/A
Investment in unconsolidated entities
59,827

 
59,827

 
2.48
%
 
N/A
 
60,007

 
60,007

 
2.49
%
 
 
Total Investment Portfolio
$
2,401,463

 
$
2,412,093

 
100.00
%
 
 
 
(1)
Net carrying amount includes allowance for loan losses of $42.1 million at September 30, 2015, allocated as follows: general allowance: B notes $20,000, mezzanine loans $8,000 and whole loans $1.8 million; specific allowance: mezzanine loans $38.1 million and whole loans $2.2 million. Net carrying amount includes allowance for loan losses of $4.0 million at December 31, 2014, allocated as follows: general allowance: B notes $55,000, mezzanine loans $230,000 and whole loans $3.8 million.
(2)
Loans held for sale are carried at the lower of cost or market. Amortized cost approximates fair value.
(3)
There is no stated rate associated with these securities.
(4)
Net carrying amount includes allowance for loan losses of $1.1 million and $570,000 at September 30, 2015 and December 31, 2014, respectively.
(5)
Net carrying amount includes allowance for loan losses of $4.1 million and $0 at September 30, 2015 and December 31, 2014, respectively.
Commercial Mortgage-Backed Securities-Private Placement.  In the aggregate, we purchased our CMBS portfolio at a net discount to par value.  At September 30, 2015 and December 31, 2014, the remaining discount to be accreted into income over the remaining lives of the securities was $2.3 million and $3.6 million, respectively. At September 30, 2015 and December 31, 2014, the remaining premium to be amortized into income over the remaining lives of the securities was $944,000 and $619,000, respectively. These securities are classified as available-for-sale and, as a result, are carried at their fair value.

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We had no losses included in earnings due to other-than-temporary impairment charges during the three and nine months ended September 30, 2015 and 2014, respectively, on positions that supported our CMBS investments.
Securities classified as available-for-sale have increased on a net basis as of September 30, 2015 as compared to December 31, 2014 primarily due to the change in guidance on CMBS linked transactions and the effect of financial statement reclassification. We perform an on-going review of third-party reports and updated financial data on the underlying property financial information to analyze current and projected loan performance.  Rating agency downgrades are considered with respect to our income approach when determining other-than-temporary impairment and, when inputs are stressed, the resulting projected cash flows reflect a full recovery of principal.
The following table summarizes our CMBS-private placement at fair value (in thousands, except percentages):
 
Fair Value at
 
 
 
 
 
 
 
 
 
Fair Value at
 
December 31,
2014
 
Net Purchases
 
Upgrades/Downgrades
 
Paydowns
 
MTM Change
Same Ratings
 
September 30,
2015
Moody's Ratings Category:
 
 
 
 
 
 
 
 
 
 
 
Aaa
$
37,783

 
$
317

 
$
(746
)
 
$
(7,418
)
 
$
(2,066
)
 
$
27,870

Aa1 through Aa3
5,673

 
—

 
(247
)
 
(298
)
 
681

 
5,809

A1 through A3
10,941

 
—

 
5,008

 
(2,500
)
 
(6,766
)
 
6,683

Baa1 through Baa3
29,938

 
—

 
(5,008
)
 
—

 
(172
)
 
24,758

Ba1 through Ba3
18,371

 
219

 
(2,181
)
 
(219
)
 
6,668

 
22,858

B1 through B3
54,665

 
—

 
12,040

 
(4,000
)
 
(19,169
)
 
43,536

Caa1 through Caa3
15,583

 
—

 
(9,859
)
 
(10,053
)
 
15,188

 
10,859

Ca through C
11,678

 
—

 
(36
)
 
(12,555
)
 
1,464

 
551

Non-Rated
34,378

 
9,720

 
1,029

 
(8,227
)
 
(1,999
)
 
34,901

   Total
$
219,010

 
$
10,256

 
$
—

 
$
(45,270
)
 
$
(6,171
)
 
$
177,825

 
 
 
 
 
 
 
 
 
 
 
 
S&P Ratings Category:
 
 
 
 
 
 
 
 
 
 
 
AAA
$
28,474

 
$
646

 
$
(11,303
)
 
$
(7,485
)
 
$
(4,745
)
 
$
5,587

A+ through A-
7,862

 
—

 
—

 
(2,542
)
 
(75
)
 
5,245

BBB+ through BBB-
29,029

 
9,391

 
1,767

 
(5,000
)
 
(8,013
)
 
27,174

BB+ through BB-
44,029

 
—

 
(142
)
 
(4,680
)
 
(2,020
)
 
37,187

B+ through B-
52,644

 
219

 
(3,086
)
 
(219
)
 
(543
)
 
49,015

CCC+ through CCC-
27,070

 
—

 
1,461

 
(14,600
)
 
(4,719
)
 
9,212

D
6,073

 
—

 
—

 
(6,955
)
 
1,413

 
531

Non-Rated
23,829

 
—

 
11,303

 
(3,789
)
 
12,531

 
43,874

   Total
$
219,010

 
$
10,256

 
$
—

 
$
(45,270
)
 
$
(6,171
)
 
$
177,825

Investment Securities, Trading.  The following table summarizes our structured notes and RMBS securities, which are classified as investment securities, trading, and are carried at fair value as follows (in thousands):
 
Amortized Cost
 
Unrealized Gains
 
Unrealized Losses
 
Fair Value
As of September 30, 2015:
 

 
 

 
 

 
 

Structured notes
$
26,635

 
$
1,952

 
$
(2,872
)
 
$
25,715

RMBS
1,896

 
—

 
(1,896
)
 
—

Total
$
28,531

 
$
1,952

 
$
(4,768
)
 
$
25,715

 
 
 
 
 
 
 
 
As of December 31, 2014:
 

 
 

 
 

 
 

Structured notes
$
22,876

 
$
1,098

 
$
(3,188
)
 
$
20,786

RMBS
1,896

 
—

 
(1,896
)
 
—

Total
$
24,772

 
$
1,098

 
$
(5,084
)
 
$
20,786


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We sold 19 securities during the nine months ended September 30, 2015, for a realized gain of $1.4 million. We held 50 and 37 investment securities, trading as of September 30, 2015 and December 31, 2014, respectively.
Real Estate Loans.  The following table is a summary of the loans in our commercial real estate loan portfolio as follows (in thousands):
Description
 
Quantity
 
Amortized Cost
 
Contracted Interest Rates
 
Maturity Dates (3)
As of September 30, 2015:
 
 
 
 
 
 
 
 
Whole loans, floating rate (1) (4) (5)
 
86
 
$
1,603,385

 
LIBOR plus 1.75% to
LIBOR plus 15.00%
 
October 2015 to February 2019
B notes, fixed rate
 
1
 
15,964

 
8.68%
 
April 2016
Mezzanine loans, fixed rate (6)
 
2
 
45,387

 
9.01%
 
September 2016
Total (2) 
 
89
 
$
1,664,736

 
 
 
 
 
 
 
 
 
 
 
 
 
As of December 31, 2014:
 
 
 
 

 
 
 
 
Whole loans, floating rate (1) (4) (5)
 
73
 
$
1,263,592

 
LIBOR plus 1.75% to
LIBOR plus 15.00%
 
May 2015 to
February 2019
B notes, fixed rate
 
1
 
16,072

 
8.68%
 
April 2016
Mezzanine loans, floating rate
 
1
 
12,558

 
LIBOR plus 15.32%
 
April 2016
Mezzanine loans, fixed rate
 
3
 
54,808

 
0.50% to 18.71%
 
January 2016 to
September 2019
Total (2) 
 
78
 
$
1,347,030

 
 
 
 

(1)
Whole loans had $103.9 million and $105.1 million in unfunded loan commitments as of September 30, 2015 and December 31, 2014, respectively.  These unfunded commitments are advanced as the borrowers formally request additional funding as permitted under the loan agreement and any necessary approvals have been obtained.
(2)
Totals do not include allowance for loan losses of $42.1 million and $4.0 million as of September 30, 2015 and December 31, 2014, respectively.
(3)
Maturity dates do not include possible extension options that may be available to the borrowers.
(4)
Includes two whole loans with a combined $12.0 million mezzanine component that have fixed rates of 12.0%, and two whole loans with a combined $4.2 million mezzanine component that have fixed rates of 15.0%, as of September 30, 2015 and December 31, 2014.
(5)
Includes a $799,000 junior mezzanine tranche of a whole loan that has a fixed rate of 10.0% as of September 30, 2015 and December 31, 2014.
(6)
Contracted interest rates and maturity dates do not include rates or maturity dates associated with one loan with an amortized cost of $38.1 million that was fully reserved as of June 30, 2015.

Bank Loans.  At September 30, 2015, our consolidated securitization, Apidos Cinco CDO, held a total of $147.6 million of bank loans at fair value.  Apidos CDO I and Apidos CDO III, our liquidated CDOs, held a total of $3.0 million of bank loans held for sale. The bank loans held by the securitizations secure the CDO notes they issued and are not available to satisfy the claims of our creditors.  The aggregate fair value of bank loans held decreased by $172.6 million from the fair value at December 31, 2014 due to the liquidation of Apidos III which occurred in June 2015.

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The following table summarizes our bank loan investments for the periods indicated (in thousands):
 
As of September 30, 2015
 
As of December 31, 2014
 
Amortized cost
 
Fair Value (1)
 
Amortized cost
 
Fair Value (1)
Moody’s ratings category:
 
 
 
 
 
 
 
Baa1 through Baa3
$
7,507

 
$
7,526

 
$
16,205

 
$
16,056

Ba1 through Ba3
95,316

 
94,803

 
173,118

 
169,207

B1 through B3
43,912

 
43,056

 
129,863

 
126,774

Caa1 through Caa3
1,991

 
1,627

 
5,234

 
4,915

Ca through C
290

 
46

 
—

 
—

No rating provided
3,611

 
3,525

 
6,510

 
6,256

Total
$
152,627

 
$
150,583

 
$
330,930

 
$
323,208

 
 
 
 
 
 
 
 
S&P ratings category:
 

 
 

 
 

 
 

BBB+ through BBB-
$
21,139

 
$
21,188

 
$
48,582

 
$
48,110

BB+ through BB-
74,156

 
73,791

 
139,544

 
134,434

B+ through B-
49,473

 
48,446

 
132,732

 
131,105

CCC+ through CCC-
3,278

 
2,876

 
3,105

 
3,096

CC+ through CC-
—

 
—

 
—

 
—

C+ through C-
—

 
—

 
—

 
—

D
—

 
—

 
459

 
208

No rating provided
4,581

 
4,282

 
6,508

 
6,255

Total
$
152,627

 
$
150,583

 
$
330,930

 
$
323,208

 
 
 
 
 
 
 
 
Weighted average rating factor
1,702

 
 

 
1,786

 
 


(1)     The bank loan portfolio's fair value is determined using dealer quotes.

The following table provides information as to the lien position and status of our bank loans, at amortized cost (in thousands):
 
Apidos I
 
Apidos III
 
Apidos Cinco
 
Total
As of September 30, 2015
 
 
 
 
 
 
 
Loans held for investment:
 
 
 
 
 
 
 
First lien loans
$
—

 
$
—

 
$
146,651

 
$
146,651

Second lien loans
—

 
—

 
2,508

 
2,508

Third lien loans
—

 
—

 
—

 
—

Defaulted first lien loans
—

 
—

 
215

 
215

Defaulted second lien loans
—

 
—

 
259

 
259

Total
—

 
—

 
149,633

 
149,633

First lien loans held for sale at fair value
153

 
—

 
2,841

 
2,994

Total
$
153

 
$
—

 
$
152,474

 
$
152,627

 
 
 
 
 
 
 
 
As of December 31, 2014:
 

 
 

 
 

 
 

Loans held for investment:
 

 
 

 
 

 
 

First lien loans
$
153

 
$
80,196

 
$
245,377

 
$
325,726

Second lien loans
—

 
—

 
3,572

 
3,572

Third lien loans
—

 
—

 
—

 
—

Defaulted first lien loans
—

 
—

 
—

 
—

Defaulted second lien loans
—

 
971

 
379

 
1,350

Total
153

 
81,167

 
249,328

 
330,648

First lien loans held for sale at fair value
—

 
—

 
282

 
$
282

Total
$
153

 
$
81,167

 
$
249,610

 
$
330,930


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Middle market loans.  At September 30, 2015, Northport TRS, LLC, or Northport LLC, our middle market lending platform, held a total of $344.1 million of middle market loans at fair value. The middle market loan portfolio is held as collateral under the senior secured revolving credit agreement. The aggregate fair value of middle market loans held increased by $96.3 million over the fair value at December 31, 2014. This increase was primarily due to increased originations and purchases of loans in our middle market lending platform.
 
As of September 30, 2015
 
As of December 31, 2014
 
Amortized cost
 
Fair Value
 
Amortized cost
 
Fair Value
Moody’s ratings category:
 
 
 
 
 
 
 
Baa1 through Baa3
$
—

 
$
—

 
$
—

 
$
—

Ba1 through Ba3
—

 
—

 
—

 
—

B1 through B3
—

 
—

 
—

 
—

Caa1 through Caa3(1)
46,602

 
42,067

 
62,053

 
60,126

Ca
—

 
—

 
—

 
—

No rating provided(2)
302,869

 
302,017

 
188,060

 
187,655

Total
$
349,471

 
$
344,084

 
$
250,113

 
$
247,781

 
 
 
 
 
 
 
 
S&P ratings category:
 
 
 
 
 
 
 
BBB+ through BBB-
$
—

 
$
—

 
$
—

 
$
—

BB+ through BB-
—

 
—

 
—

 
—

B+ through B-
—

 
—

 
4,959

 
3,798

CCC+ through CCC-(1)
34,209

 
33,997

 
49,665

 
48,988

CC+ through CC-
—

 
—

 
—

 
—

C+ through C-
—

 
—

 
—

 
—

D

 

 
—

 
—

No rating provided(2)
315,262

 
310,087

 
195,489

 
194,995

Total
$
349,471

 
$
344,084

 
$
250,113

 
$
247,781

 
 
 
 
 
 
 
 
Weighted average rating factor
624

 
 
 
921

 
 

(1)     The middle market loan portfolio's fair value is determined using dealer quotes.
(2)     The middle market loan portfolio's fair value is determined using third party valuations.
    
The following table provides information as to the lien position and status of middle market loans, at amortized cost (in thousands):    
 
As of September 30, 2015
 
As of December 31, 2014
First Lien
$
221,961

 
$
149,287

Second Lien
122,554

 
100,826

First Lien Defaulted
—

 
—

Second Lien Defaulted
4,956

 
—

 
$
349,471

 
$
250,113


Asset-backed securities.  At September 30, 2015, we held a total of $52.1 million of ABS at fair value through Apidos Cinco CDO, RCM Global and RCC Commercial II.  At December 31, 2014, we held a total of $72.2 million of ABS at fair value through Apidos CDO III, Apidos Cinco CDO, RCM Global and RCC Commercial II.  The decrease in total ABS was due to the sale of structured notes in RCM Global that occurred during the three and nine months ended September 30, 2015 as well as the liquidation of Apidos CDO III in June 2015.

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The following table summarizes our ABS at fair value (in thousands):
 
As of September 30, 2015
 
As of December 31, 2014
 
Amortized Cost
 
Fair Value
 
Amortized Cost
 
Fair Value
Moody’s ratings category:
 
 
 
 
 
 
 
Aaa
$
6,473

 
$
6,990

 
$
6,084

 
$
6,638

Aa1 through Aa3
—

 
—

 
3,748

 
4,168

A1 through A3
—

 
—

 
—

 
—

Baa1 through Baa3
—

 
—

 
243

 
232

Ba1 through Ba3
377

 
355

 
774

 
727

B1 through B3
—

 
—

 
—

 
—

No rating provided
40,260

 
44,803

 
44,768

 
60,392

Total
$
47,110

 
$
52,148

 
$
55,617

 
$
72,157

 
 
 
 
 
 
 
 
S&P ratings category:
 

 
 

 
 

 
 

AAA
$
6,397

 
$
6,913

 
$
5,169

 
$
5,640

AA+ through AA-
—

 
—

 
3,748

 
4,168

A+ through A-
—

 
—

 
—

 
—

BBB+ through BBB-
—

 
—

 
—

 
—

BB+ through BB-
377

 
355

 
774

 
727

B+ through B-
—

 
—

 
243

 
232

No rating provided
40,336

 
44,880

 
45,683

 
61,390

Total
$
47,110

 
$
52,148

 
$
55,617

 
$
72,157

 
 
 
 
 
 
 
 
Weighted average rating factor
91

 
 

 
99

 
 

Corporate bonds. At September 30, 2015, our consolidated securitization, Apidos Cinco CDO, held a total of $2.3 million of corporate bonds at fair value, which secure the debt issued by this entity.  These investments are held at fair value with any unrealized gain or loss reported in the equity section of the balance sheet. The aggregate fair value of corporate bonds held decreased by $100,000 over those held at December 31, 2014. The decrease was primarily due to increased unrealized losses attributable to market pricing during the nine months ended September 30, 2015.
    

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The following table summarizes our corporate bonds at fair value (in thousands):
 
September 30, 2015
 
December 31, 2014
 
Amortized Cost
 
Fair Value
 
Amortized Cost
 
Fair Value
Moody’s ratings category:
 
 
 
 
 
 
 
B1 through B3
$
868

 
$
868

 
$
—

 
$
—

Ca
1,469

 
1,361

 
1,458

 
1,447

Caa1 through Caa3
83

 
78

 
957

 
960

No rating provided
—

 
—

 
—

 
—

Total
$
2,420

 
$
2,307

 
$
2,415

 
$
2,407

 
 
 
 
 
 
 
 
S&P ratings category:
 

 
 

 
 

 
 

B+ through B-
$
868

 
$
868

 
$
868

 
$
870

CCC+ through CCC-
1,552

 
1,439

 
1,547

 
1,537

D
—

 
—

 
—

 
—

Total
$
2,420

 
$
2,307

 
$
2,415

 
$
2,407

Weighted average rating factor
7,512

 
 

 
7,963

 
 

Investment in Unconsolidated Entities. The following table shows our investments in unconsolidated entities as of September 30, 2015 and December 31, 2014, and equity in earnings of unconsolidated entities for the three and nine months ended September 30, 2015 and three and nine months ended September 30, 2014 (in thousands):
 
 
 
 
 
 
 
Equity in Earnings of Unconsolidated subsidiaries
 
 
 
Balance as of
 
Balance as of
 
For the
three months ended
 
For the
nine months ended
 
For the
three months ended
 
For the
nine months ended
 
Ownership %
 
September 30,
2015
 
December 31,
2014
 
September 30,
2015
 
September 30,
2015
 
September 30,
2014
 
September 30,
2014
Varde Investment Partners, L.P
7.5%
 
$
654

 
$
654

 
$
—

 
$
—

 
$
—

 
$
(19
)
RRE VIP Borrower, LLC (1)
3% to 5%
 
—

 
—

 
—

 
46

 
770

 
2,506

Investment in LCC Preferred Stock
28.4%
 
40,779

 
39,416

 
961

 
1,362

 
13

 
(859
)
Investment in CVC Global Credit Opportunities Fund (2)
14.1%
 
12,877

 
18,209

 
(628
)
 
293

 
47

 
2,004

Investment in
Life Care Funding (3)
60.7%
 
—

 
—

 
—

 
—

 
—

 
(75
)
Investment in School Lane House (1)
 
 
—

 
—

 
1

 
1

 
57

 
1,106

     Subtotal
 
 
54,310

 
58,279

 
334

 
1,702

 
887

 
4,663

Investment in RCT I and II (4)
3.0%
 
1,548

 
1,548

 
(610
)
 
(1,805
)
 
(601
)
 
(1,785
)
Investment in Preferred Equity (1) (5)
 
 
—

 
—

 
—

 
—

 
—

 
410

     Total
 
 
$
55,858

 
$
59,827

 
$
(276
)
 
$
(103
)
 
$
286

 
$
3,288

(1) Investment in School Lane House, Investment in RRE VIP Borrower and Investment in Preferred Equity were sold or repaid as of December 31, 2014.
(2) In March 2015, we elected a partial redemption of $5.0 million from the fund.
(3) In January 2013, Long Term Care Conversion, Inc. ("LTCC"), invested $2.0 million into LCF for the purpose of originating and acquiring life settlement contracts. In February 2014, we invested an additional $1.4 million which resulted in the consolidation of LCF during the first quarter of 2014. Ownership percentage represents ownership following the additional investment and consolidation.
(4)
For the three and nine months ended September 30, 2015 and 2014, these amounts are recorded in interest expense on our consolidated statements of operations.
(5)
For the three and nine months ended September 30, 2015 and 2014, these amounts are recorded in interest income on loans on our consolidated statements of operations.        

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Financing Receivables
The following tables show the allowance for loan losses and recorded investments in loans as of the dates indicated (in thousands):
 
Commercial Real Estate Loans
 
Bank Loans
 
Middle Market Loans
 
Residential Mortgage Loans
 
Loans Receivable-Related Party
 
Total
As of September 30, 2015:
 
 
 
 
 
 
 
 
 
 
 
Allowance for Loan Losses:
 
 
 
 
 
 
 
 
 
 
 
Allowance for losses at January 1, 2015
$
4,043

 
$
570

 
$
—

 
$
—

 
$
—

 
$
4,613

Provision (recovery) for loan losses
38,025

 
1,912

 
4,223

 
(110
)
 
(216
)
 
43,834

Loans charged-off
—

 
(1,398
)
 
(137
)
 
110

 
216

 
(1,209
)
Recoveries
46

 
—

 
—

 
—

 
—

 
46

Allowance for losses at September 30, 2015
$
42,114

 
$
1,084

 
$
4,086

 
$
—

 
$
—

 
$
47,284

Ending balance:
 

 
 

 
 
 
 

 
 

 
 

Individually evaluated for impairment
$
40,274

 
$
345

 
$
4,086

 
$
—

 
$
—

 
$
44,705

Collectively evaluated for impairment
$
1,840

 
$
739

 
$
—

 
$
—

 
$
—

 
$
2,579

Loans acquired with deteriorated credit quality
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

Loans:
 

 
 

 
 
 
 

 
 

 
 

Ending balance:
 

 
 

 
 
 
 

 
 

 
 

Individually evaluated for impairment
$
129,078

 
$
474

 
$
349,471

 
$
—

 
$
—

 
$
479,023

Collectively evaluated for impairment
$
1,535,658

 
$
149,159

 
$
—

 
$
2,422

 
$
—

 
$
1,687,239

Loans acquired with deteriorated credit quality
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
 
 
 
 
 
 
 
 
 
 
 
As of December 31, 2014:
 

 
 

 
 
 
 

 
 

 
 

Allowance for Loan Losses:
 
 
 
 
 
 
 
 
 
 
 
Allowance for losses at January 1, 2014
$
10,416

 
$
3,391

 
$
—

 
$
—

 
$
—

 
$
13,807

Provision for loan losses
(3,758
)
 
4,173

 
92

 
—

 
1,297

 
1,804

Loans charged-off
(2,615
)
 
(6,994
)
 
(92
)
 
—

 
(1,297
)
 
(10,998
)
Allowance for losses at December 31, 2014
$
4,043

 
$
570

 
$
—

 
$
—

 
$
—

 
$
4,613

Ending balance:
 

 
 

 
 
 
 

 
 

 
 

Individually evaluated for impairment
$
—

 
$
570

 
$
—

 
$
—

 
$
—

 
$
570

Collectively evaluated for impairment
$
4,043

 
$
—

 
$
—

 
$
—

 
$
—

 
$
4,043

Loans acquired with deteriorated credit quality
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

Loans:
 

 
 

 
 
 
 

 
 

 
 

Ending balance:
 

 
 

 
 
 
 

 
 

 
 

Individually evaluated for impairment
$
166,180

 
$
1,350

 
$
250,113

 
$
—

 
$
1,277

 
$
418,920

Collectively evaluated for impairment
$
1,180,850

 
$
329,580

 
$
—

 
$
2,802

 
$
—

 
$
1,513,232

Loans acquired with deteriorated credit quality
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—


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Credit quality indicators
Bank Loans
We use a risk grading matrix to assign grades to bank loans.  Loans are graded at inception and updates to assigned grades are made continually as new information is received.  We grade loans on a scale of 1-5 with 1 representing the our highest rating and 5 representing its lowest rating.  A loan with a rating of a 1 is considered performing within expectations, a loan with a rating of a 2 is considered watching closely with limited liquidity concerns, a loan with a rating of a 3 is considered to have possible future liquidity concerns, a loan with a rating of a 4 is considered to have nearer term liquidity concerns, and a loan with a rating of a 5 has defaulted. We also designate loans that are sold after the period end as held for sale at the lower of their fair market value or cost, net of any allowances and costs associated with the loan sales.  We consider metrics such as performance of the underlying company, liquidity, collectability of interest, enterprise valuation, default probability, ratings from rating agencies and industry dynamics in grading our bank loans.
Credit risk profiles of bank loans were as follows (in thousands):
 
Rating 1
 
Rating 2
 
Rating 3
 
Rating 4
 
Rating 5
 
Held for Sale
 
Total
As of September 30, 2015:
 
 
 
 
 
 
 
 
 
 
 
 
 
Bank loans
$
133,727

 
$
10,836

 
$
2,148

 
$
2,448

 
$
474

 
$
2,994

 
$
152,627

 
 
 
 
 
 
 
 
 
 
 
 
 
 
As of December 31, 2014:
 

 
 

 
 

 
 

 
 

 
 

 
 

Bank loans
$
291,214

 
$
32,660

 
$
5,424

 
$
—

 
$
1,350

 
$
282

 
$
330,930

All of our bank loans were current with respect to debt service with the exception of two loans with an aggregate amortized cost of $474,000 as of September 30, 2015. As of December 31, 2014, all of our bank loans were current with respect to debt service with the exception of two loans with an aggregate amortized cost of $1.4 million, one of which defaulted as of March 31, 2014 and the other of which defaulted as of September 30, 2014.
Middle Market Loans
We use a risk grading matrix to assign grades to middle market loans.  At inception, all middle market loans are graded at a 2 and updates to assigned grades are made continually as new information is received. Loans are graded on a scale of 1-5 with 1 representing our highest rating and 5 representing its lowest rating.  A loan with a rating of a 1 is considered performing above expectations, a loan with a rating of a 2 is considered performing within expectations, a loan with a rating of a 3 is considered performing below expectations and requires close monitoring but no loss of interest or principal is expected,  a loan with a rating of a 4 is considered to performing below expectations and some loss of interest or dividend is expected but no loss of principal, and a loan with a rating of a 5 is considered performing substantially below expectations, in default and some loss of principal is expected. We consider metrics such as performance of the underlying company, liquidity, collectability of interest and principal payments, enterprise valuation, default probability, and industry dynamics in grading our middle market loans.
Credit risk profiles of bank and middle market loans were as follows (in thousands):
 
Rating 1
 
Rating 2
 
Rating 3
 
Rating 4
 
Rating 5
 
Held for Sale
 
Total
As of September 30, 2015:
 
 
 
 
 
 
 
 
 
 
 
 
 
Middle market loans
$
52,206

 
$
255,237

 
$
37,072

 
$
—

 
$
4,956

 
$
—

 
$
349,471

 
 
 
 
 
 
 
 
 
 
 
 
 
 
As of December 31, 2014:
 
 
 
 
 
 
 
 
 
 
 
 
 
Middle market loans
$
—

 
$
240,245

 
$
9,868

 
$
—

 
$
—

 
$
—

 
$
250,113

As of September 30, 2015, one loan was in default with a risk rating of a 5, the rest of the Company's portfolio is current with respect to debt service. All of the Company’s middle market loans were current with respect to debt service as of December 31, 2014.

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Commercial Real Estate Loans
We use a risk grading matrix to assign grades to commercial real estate loans.  We grade loans at inception and continually update the assigned grades as we receive new information.  We grade loans on a scale of 1-4 with 1 representing our highest rating and 4 representing our lowest rating.  A loan with a rating of a 1 is considered to have satisfactory performance with no issues noted. A loan is graded with a rating of a 2 if a surveillance trigger event has occurred without mitigating circumstance to support such event. A loan with a rating of 3 has experienced an extended decline in operating performance, a significant deviation from its origination plan or the occurrence of one or more surveillance trigger events which create an increased risk for potential default. A loan with a rating of a 4 is considered to be in default or that default is imminent and full recovery of the unpaid principal balance is improbable. We designate loans that are sold after the period end at the lower of fair market value or cost, net of any allowances and costs associated with the loan sales. In addition to the underlying performance of the loan collateral, we consider such metrics as the strength of underlying sponsorship, payment history, collectability of interest, structural credit enhancements, market trends and loan terms in grading our commercial real estate loans.
During the second quarter of 2015, we recorded an allowance for loan loss on a subordinated mezzanine loan position that was acquired in 2007. The outstanding loan balance of $38.1 million was fully reserved and associated accrued interest of $3.0 million was reserved reversed against interest income, for a total charge to operations of $41.1 million. The loan was originally supported by a portfolio of 13 hotel properties, most of which were luxury brand hotels. As of September 30, 2015, of the original 13 hotel properties securing the loan, two properties remain, both of which are located in or near San Juan, Puerto Rico.
A confluence of several events led to the determination during the quarter that the loan was no longer collectible.
First, the senior mortgage secured by the assets was refinanced in May 2015, and the new agreement contained certain terms and conditions that materially altered the original time horizon over which the borrower had originally planned to complete executing its business plan--which entailed holding the assets in an effort to maximize value. Namely, the new senior loan came with a one year term with no extension options, a high interest rate and a forced asset-sale mechanism that assured the new senior loan would be paid in full in 2016.
Second, the Commonwealth of Puerto Rico has been undergoing a very turbulent and volatile period regarding the Commonwealth’s debt obligations. It has been working with the Federal Reserve Bank to attempt to restructure its $73.0 billion of debt. The Puerto Rico debt crisis worsened through and after the second quarter, and within the last month, ultimately culminating in Puerto Rico defaulting on a $58.0 million payment due to the Public Finance Corporation on August 1, 2015. The significant threats of a default by Puerto Rico have been publicized and the financial crisis there has quelled tourism and significantly impaired property values.
Likely due, at least in part, to the Puerto Rico debt crisis, one of the three remaining hotel properties went under contract in June 2015 and sold in July 2015 at an amount that would make it very difficult for the other two remaining properties to generate sufficient proceeds to repay the remaining debt. Given the forgoing, we concluded as of June 30, 2015, that the loan should be classified as a troubled-debt-restructuring and, further, that the loan should be fully reserved.
Credit risk profiles of commercial real estate loans were as follows (in thousands):
 
Rating 1
 
Rating 2
 
Rating 3
 
Rating 4
 
Held for Sale
 
Total
As of September 30, 2015:
 
 
 
 
 
 
 
 
 
 
 
Whole loans
$
1,568,683

 
$
32,500

 
$
—

 
$
2,202

 
$
—

 
$
1,603,385

B notes
15,964

 
—

 
—

 
—

 
—

 
15,964

Mezzanine loans
7,315

 
—

 
—

 
38,072

 
—

 
45,387

 
$
1,591,962

 
$
32,500

 
$
—

 
$
40,274

 
$
—

 
$
1,664,736

 
 
 
 
 
 
 
 
 
 
 
 
As of December 31, 2014:
 

 
 

 
 

 
 

 
 

 
 

Whole loans
$
1,231,092

 
$
32,500

 
$
—

 
$
—

 
$
—

 
$
1,263,592

B notes
16,072

 
—

 
—

 
—

 
—

 
16,072

Mezzanine loans
45,432

 
21,934

 
—

 
—

 
—

 
67,366

 
$
1,292,596

 
$
54,434

 
$
—

 
$
—

 
$
—

 
$
1,347,030

We had no delinquent commercial real estate loans as of September 30, 2015 and December 31, 2014.

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Residential Mortgage Loans
Residential mortgage loans are reviewed periodically for collectability in light of historical experience, the nature and amount of the loan portfolio, adverse situations that may affect the borrower's ability to repay, estimated value of any underlying collateral, and prevailing underlying conditions. We also designate loans that are sold after the period ends as held for sale at the lower of their fair market value or cost.
Loans Receivable - Related Party
We recorded a recovery on loan losses of $216,000 during the nine months ended September 30, 2015 for a provision recorded during the year ended December 31, 2014. During the year ended December 31, 2014, we recorded a provision for loan losses on one related-party loan of $1.3 million before extinguishing the loan and bringing direct financing leases in the amount of $2.1 million on the our books in lieu of cash settlement of the loan receivable.
Loan Portfolios Aging Analysis
The following table shows the loan portfolio aging analysis as of the dates indicated at cost basis (in thousands):
 
30-59 Days
 
60-89 Days
 
Greater than 90 Days
 
Total Past Due
 
Current (3)
 
Total Loans Receivable
 
Total Loans > 90 Days and Accruing
As of September 30, 2015:
 

 
 

 
 
 
 

 
 

 
 
 
 
Whole loans
$
—

 
$
—

 
$
—

 
$
—

 
$
1,603,385

 
$
1,603,385

 
$
—

B notes
—

 
—

 
—

 
—

 
15,964

 
15,964

 
—

Mezzanine loans
—

 
—

 
—

 
—

 
45,387

 
45,387

 
—

Bank loans (1)
—

 
—

 
474

 
474

 
152,153

 
152,627

 
—

Middle market loans
—

 
—

 
4,956

 
4,956

 
344,515

 
349,471

 
—

Residential mortgage loans (2)
—

 
—

 
190

 
190

 
115,239

 
115,429

 
—

Total loans
$
—

 
$
—

 
$
5,620

 
$
5,620

 
$
2,276,643

 
$
2,282,263

 
$
—

 
 
 
 
 
 
 
 
 
 
 
 
 
 
As of December 31, 2014:
 

 
 

 
 

 
 

 
 

 
 

 
 

Whole loans
$
—

 
$
—

 
$
—

 
$
—

 
$
1,263,592

 
$
1,263,592

 
$
—

B notes
—

 
—

 
—

 
—

 
16,072

 
16,072

 
—

Mezzanine loans
—

 
—

 
—

 
—

 
67,366

 
67,366

 
—

Bank loans (1)
—

 
—

 
1,350

 
1,350

 
329,580

 
330,930

 
—

Middle Market
—

 
—

 
—

 
—

 
250,113

 
250,113

 
—

Residential mortgage loans (2)
443

 
82

 
119

 
644

 
113,612

 
114,256

 
—

Loans receivable-related party
—

 
—

 
—

 
—

 
1,277

 
1,277

 
—

Total loans
$
443

 
$
82

 
$
1,469

 
$
1,994

 
$
2,041,612

 
$
2,043,606

 
$
—

                            
(1)
Contains $3.0 million and $282,000 of bank loans held for sale at September 30, 2015 and December 31, 2014, respectively.
(2)
Contains $113.0 million and $113.4 million of residential mortgage loans held for sale at fair value September 30, 2015 and December 31, 2014, respectively.
(3)
Current loans include one impaired mezzanine loan and one impaired whole loan with amortized costs of $38.1 million and $2.2 million, respectively, that were both fully reserved as of September 30, 2015.


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Impaired Loans
The following tables show impaired loans as of the dates indicated (in thousands):
 
Recorded Investment
 
Unpaid Principal Balance
 
Specific Allowance
 
Average Investment in Impaired Loans
 
Interest Income Recognized
As of September 30, 2015:
 
 
 
 
 
 
 
 
 
Loans without a specific valuation allowance:
 
 
 
 
 
 
 
 
 
Whole loans
$
129,078

 
$
129,078

 
$
—

 
$
128,591

 
$
15,659

B notes
$
—

 
$
—

 
$
—

 
$
—

 
$
—

Mezzanine loans
$
—

 
$
—

 
$
—

 
$
—

 
$
—

Bank loans
$
—

 
$
—

 
$
—

 
$
—

 
$
—

Middle market loans
$
—

 
$
—

 
$
—

 
$
—

 
$
—

Residential mortgage loans
$
2,422

 
$
2,422

 
$
—

 
$
2,785

 
$
116

Loans receivable - related party
$
—

 
$
—

 
$
—

 
$
—

 
$
—

Loans with a specific valuation allowance:
 
 
 
 
 
 
 
 
 
Whole loans
$
2,202

 
$
2,202

 
$
(2,202
)
 
$
2,202

 
$
45

B notes
$
—

 
$
—

 
$
—

 
$
—

 
$
—

Mezzanine loans
$
38,072

 
$
38,072

 
$
(38,072
)
 
$
38,072

 
$
—

Bank loans
$
474

 
$
474

 
$
(345
)
 
$
237

 
$
—

Middle market loans
$
4,956

 
$
4,900

 
$
(4,086
)
 
$
4,956

 
$
—

Residential mortgage loans
$
—

 
$
—

 
$
—

 
$
—

 
$
—

Loans receivable - related party
$
—

 
$
—

 
$
—

 
$
—

 
$
—

Total:
 

 
 

 
 

 
 

 
 

Whole loans
$
131,280

 
$
131,280

 
$
(2,202
)
 
$
130,793

 
$
15,704

B notes
—

 
—

 
—

 
—

 
—

Mezzanine loans
38,072

 
38,072

 
(38,072
)
 
38,072

 
—

Bank loans
474

 
474

 
(345
)
 
237

 
—

Middle market loans
4,956

 
4,900

 
(4,086
)
 
4,956

 
—

Residential mortgage loans
2,422

 
2,422

 
—

 
2,785

 
116

Loans receivable - related party
—

 
—

 
—

 
—

 
—

 
$
177,204

 
$
177,148

 
$
(44,705
)
 
$
176,843

 
$
15,820

 
 
 
 
 
 
 
 
 
 
As of December 31, 2014:
 

 
 

 
 

 
 

 
 

Loans without a specific valuation allowance:
 

 
 

 
 

 
 

 
 

Whole loans
$
128,108

 
$
128,108

 
$
—

 
$
130,445

 
$
12,679

B notes
$
—

 
$
—

 
$
—

 
$
—

 
$
—

Mezzanine loans
$
38,072

 
$
38,072

 
$
—

 
$
38,072

 
$
2,859

Bank loans
$
—

 
$
—

 
$
—

 
$
—

 
$
—

Middle market loans
$
—

 
$
—

 
$
—

 
$
—

 
$
—

Residential mortgage loans
$
2,082

 
$
2,082

 
$
—

 
$
2,082

 
$
148

Loans receivable - related party
$
—

 
$
—

 
$
—

 
$
—

 
$
—

Loans with a specific valuation allowance:
 

 
 

 
 

 
 

 
 

Whole loans
$
—

 
$
—

 
$
—

 
$
—

 
$
—

B notes
$
—

 
$
—

 
$
—

 
$
—

 
$
—

Mezzanine loans
$
—

 
$
—

 
$
—

 
$
—

 
$
—

Bank loans
$
1,350

 
$
1,350

 
$
(570
)
 
$
—

 
$
—

Middle market loans
$
—

 
$
—

 
$
—

 
$
—

 
$
—

Residential mortgage loans
$
—

 
$
—

 
$
—

 
$
—

 
$
—

Loans receivable - related party
$
—

 
$
—

 
$
—

 
$
—

 
$
—

Total:
 

 
 

 
 

 
 

 
 


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Whole loans
$
128,108

 
$
128,108

 
$
—

 
$
130,445

 
$
12,679

B notes
—

 
—

 
—

 
—

 
—

Mezzanine loans
38,072

 
38,072

 
—

 
38,072

 
2,859

Bank loans
1,350

 
1,350

 
(570
)
 
—

 
—

Middle market loans
—

 
—

 
—

 
—

 
—

Residential mortgage loans
2,082

 
2,082

 
—

 
2,082

 
148

Loans receivable - related party
—

 
—

 
—

 
—

 
—

 
$
169,612

 
$
169,612

 
$
(570
)
 
$
170,599

 
$
15,686

Troubled-Debt Restructurings
The following tables show troubled-debt restructurings in our loan portfolio (in thousands):
 
Number of Loans
 
Pre-Modification Outstanding Recorded Balance
 
Post-Modification Outstanding Recorded Balance
Nine Months Ended September 30, 2015
 
 
 
 
 
Whole loans
3
 
$
99,959

 
$
99,959

B notes
—
 
—

 
—

Mezzanine loans
1
 
38,072

 
—

Bank loans
—
 
—

 
—

Middle market loans
—
 
—

 
—

Residential mortgage loans
—
 
—

 
—

Loans receivable - related party
—
 
—

 
—

Total loans
4
 
$
138,031

 
$
99,959

 
 
 
 
 
 
 
Number of Loans
 
Pre-Modification Outstanding Recorded Balance
 
Post-Modification Outstanding Recorded Balance
Nine Months Ended September 30, 2014
 
 
 
 
 
Whole loans
2
 
$
16,039

 
$
16,039

B notes
—
 
—

 
—

Mezzanine loans
1
 
38,072

 
38,072

Bank loans
—
 
—

 
—

Middle market loans
—
 
—

 
—

Residential mortgage loans
—
 
—

 
—

Loans receivable - related party
—
 
—

 
—

Total loans
3
 
$
54,111

 
$
54,111

As of September 30, 2015 and 2014, there were no commercial real estate loan troubled-debt restructurings that subsequently defaulted.
Restricted Cash
At September 30, 2015, we had restricted cash of $24.1 million, which consisted of $22.2 million of restricted cash held by nine securitizations and $1.9 million held in various reserve accounts. At December 31, 2014, we had restricted cash of $122.1 million, which consisted of $121.2 million of restricted cash on our ten securitizations and $891,000 held in various reserve accounts. The decrease of $98.0 million is primarily related to the liquidation of Moselle CLO S.A. and Apidos CDO III during the nine months ended September 30, 2015.

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Interest Receivable
At September 30, 2015, we had interest receivable of $13.9 million, which consisted of $13.9 million of interest on our securities and loans and $6,000 of interest earned on escrow and sweep accounts.  At December 31, 2014, we had interest receivable of $16.3 million, which consisted of $16.3 million of interest on our securities and loans and $6,000 of interest earned on escrow and sweep accounts.  The $2.3 million decrease resulted from a decrease in interest receivable on mezzanine loans of $2.7 million, a decrease in interest receivable on bank loans of $380,000, a decrease in interest receivable on middle market loans of $182,000, a decrease in interest receivable on RMBS of $168,000 and a decrease in interest receivable on PCM of $51,000, partially offset by an increase in interest receivable on equity investments of $685,000, an increase of interest receivable on structured notes of $340,000, an increase of interest receivable on jumbo loans of $77,000 and an increase of interest receivable on CMBS of $58,000.
Prepaid Expenses
The following table summarizes our prepaid expenses at the periods indicated (in thousands):
 
September 30,
2015
 
December 31,
2014
 
Net Change
Prepaid taxes
$
2,310

 
$
2,622

 
$
(312
)
Prepaid insurance
460

 
191

 
269

Other prepaid expenses
1,106

 
1,383

 
(277
)
Total
$
3,876

 
$
4,196

 
$
(320
)
Prepaid expenses decreased $320,000 to $3.9 million as of September 30, 2015 from $4.2 million as of December 31, 2014. The nominal decrease resulted from a decrease of $312,000 of prepaid taxes related to the most recent tax filing and a decrease of $277,000 in other prepaid expenses. This decrease was partially offset by an increase of $269,000 in prepaid insurance related to timing of payment of the annual premium.
Other Assets
The following table summarizes our other assets as of the periods indicated (in thousands):
 
September 30,
2015
 
December 31,
2014
 
Net Change
Investment in life settlement contracts
$
5,264

 
$
3,361

 
$
1,903

Tax receivable
2,057

 
623

 
1,434

Management fees receivable
736

 
1,076

 
(340
)
Fixed assets - non real estate
2,118

 
1,901

 
217

Other assets
2,596

 
7,549

 
(4,953
)
Total
$
12,771

 
$
14,510

 
$
(1,739
)
The decrease of approximately $1.7 million in other assets is primarily due to a decrease in other assets of $5.0 million, $3.7 million of this amount related to a middle market loan position that had traded but was unsettled as of December 31, 2014. This decrease was partially offset by an increase of $1.9 million in life settlement contracts from the net acquisition of new contracts and an increase of $1.4 million in tax receivable due to a reimbursement of federal tax due to us that was withheld in error by the taxing agency. A slight decrease of $340,000 in management fees receivables and a nominal increase of $217,000 in fixed assets also contributed to the net change during the period ended September 30, 2015 .

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Hedging Instruments
The following tables present the fair value of our derivative financial instruments as well as their classification on our consolidated balance sheets and on the consolidated statements of operations for the years presented:
Fair Value of Derivative Instruments as of September 30, 2015
(in thousands)
 
Asset Derivatives
 
Notional Amount
 
Balance Sheet Location
 
Fair Value
Interest rate lock agreements
$
111,772

 
Derivatives, at fair value
 
$
2,088

Forward contracts - residential mortgage lending
$
124,483

 
Derivatives, at fair value
 
$
814

Forward contracts - foreign currency, hedging (1)(2)
$
11,127

 
Derivatives, at fair value
 
$
1

Warrants (5)
$
553

 
Derivatives, at fair value
 
$
827

 
 
 
 
 
 
 
Liability Derivatives
 
Notional Amount
 
Balance Sheet Location
 
Fair Value
Interest rate swap contracts, hedging (3)
$
121,867

 
Derivatives, at fair value
 
$
5,255

Forward contracts - residential mortgage lending
$
242,919

 
Derivatives, at fair value
 
$
2,040

Forward contracts - foreign currency, hedging (4)(2)
$
15,699

 
Derivatives, at fair value
 
$
45

Forward contracts - TBA securities
$
31,000

 
Derivatives, at fair value
 
$
126

 
 
 
 
 
 
Interest rate swap contracts
$
104,367

 
Accumulated other comprehensive (income) loss
 
$
5,004

 
(1)
Notional amount presented on currency converted basis. The notional amount of the Company's foreign currency hedging forward contracts was €10.3 million as of September 30, 2015.
(2)
Foreign currency forward contracts are accounted for as fair value hedges.
(3)
Interest rate swap contracts are accounted for as cash flow hedges.
(4)
Notional amount presented on currency converted basis. The notional amount of the Company's foreign currency hedging forward contracts was €14.5 million as of September 30, 2015.
(5)
The notional amount of the Company's warrants is the calculated number of shares available for purchase.


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Fair Value of Derivative Instruments as of December 31, 2014:
(in thousands)
 
Asset Derivatives
 
Notional Amount
 
Balance Sheet Location
 
Fair Value
Interest rate lock agreements
$
59,467

 
Derivatives, at fair value
 
$
970

Forward contracts - residential mortgage lending
$
5,000

 
Derivatives, at fair value
 
$
7

Forward contracts - RMBS securities
$
42,614

 
Derivatives, at fair value
 
$
1,297

Forward contracts - foreign currency, hedging (1)(2)
$
54,948

 
Derivatives, at fair value
 
$
3,377

Options - U.S. Treasury futures
$
90

 
Derivatives, at fair value
 
$
52

Warrants
$
492

 
Derivatives, at fair value
 
$
898

 
Liability Derivatives
 
Notional Amount
 
Balance Sheet Location
 
Fair Value
Interest rate swap contracts, hedging (3)
$
124,017

 
Derivatives, at fair value
 
$
8,680

Interest rate lock agreements
$
798

 
Derivatives, at fair value
 
$
10

Forward contracts - residential mortgage lending
$
154,692

 
Derivatives, at fair value
 
$
1,036

Forward contracts - TBA securities
$
15,000

 
Derivatives, at fair value
 
$
47

Interest rate swap contracts
$
124,017

 
Accumulated other comprehensive (income) loss
 
$
8,680

(1)
Notional amount presented on currency converted basis. The notional amount of our foreign currency hedging forward contracts was €45.4 million as of December 31, 2014.
(2)
Foreign currency forward contracts are accounted for as fair value hedges.
(3)
Interest rate swap contracts are accounted for as cash flow hedges.

The Effect of Derivative Instruments on the Statements of Operations for the
Nine Months Ended September 30, 2015
(in thousands)
 
Derivatives
 
 
Statement of Operations Location
 
Realized and Unrealized Gain (Loss) (1)
Interest rate swap contracts, hedging
 
Interest expense
 
$
4,923

Interest rate swap contracts, hedging
 
Net realized and unrealized gain (loss) on sales of investment securities available-for-sale and loans and derivatives
 
$
(34
)
Interest rate lock agreements
 
Net realized and unrealized gain (loss) on sales of investment securities available-for-sale and loans and derivatives
 
$
1,128

Forward contracts - RMBS securities
 
Net realized and unrealized gain (loss) on sales of investment securities available-for-sale and loans and derivatives
 
$
(122
)
Forward contracts - residential mortgage lending
 
Net realized and unrealized gain (loss) on sales of investment securities available-for-sale and loans and derivatives
 
$
(197
)
Forward contracts - foreign currency, hedging
 
Net realized and unrealized gain (loss) on sales of investment securities available-for-sale and loans and derivatives
 
$
2,254

Options - U.S. Treasury futures
 
Net realized and unrealized gain (loss) on sales of investment securities available-for-sale and loans and derivatives
 
$
184

Forward contracts - TBA securities
 
Net realized and unrealized gain (loss) on sales of investment securities available-for-sale and loans and derivatives
 
$
415

(1)Negative values indicate a decrease to the associated balance sheets or consolidated statements of operations line items.


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The Effect of Derivative Instruments on the Statements of Operations for the
Nine Months Ended September 30, 2014
(in thousands)
 
Derivatives
 
 
Statement of Operations Location
 
Realized and Unrealized Gain (Loss) (1)
Interest rate swap contracts
 
Interest expense
 
$
4,917

Interest rate lock agreements
 
Net realized and unrealized gain (loss) on sales of investment securities available-for-sale and loans and derivatives
 
$
733

Forward contracts - residential mortgage lending
 
Net realized and unrealized gain (loss) on sales of investment securities available-for-sale and loans and derivatives
 
$
(254
)
Forward contracts - foreign currency, hedging
 
Net realized and unrealized gain (loss) on sales of investment securities available-for-sale and loans and derivatives
 
$
2,192

Total return swap
 
Net realized and unrealized gain (loss) on sales of investment securities available-for-sale and loans and derivatives
 
$
960

Forward contracts - TBA securities
 
Net realized and unrealized gain (loss) on sales of investment securities available-for-sale and loans and derivatives
 
$
(280
)
 
(1)Negative values indicate a decrease to the associated balance sheets or consolidated statements of operations line items.

With interest rates projected to remain relatively low, the maturity of one hedge contract during the second quarter, and the continued amortization of our swaps during 2015, we expect that the fair value of our interest rate swap hedges will continue to modestly improve in 2015.  As of September 30, 2015, we had entered into one swap contract in order to hedge against unfavorable rate movements against our jumbo residential mortgage loan portfolio, and we may continue to seek such hedges in the future.
Our interest rate hedges at September 30, 2015 were as follows (in thousands): 
 
 
Benchmark rate
 
Notional
value
 
Strike
rate
 
Effective
date
 
Maturity
date
 
Fair
value
CRE Swaps
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate swap
 
1 month LIBOR
 
$
11,612

 
4.13%
 
01/10/08
 
05/25/16
 
$
(197
)
Interest rate swap
 
1 month LIBOR
 
1,681

 
5.72%
 
07/12/07
 
10/01/16
 
(89
)
Interest rate swap
 
1 month LIBOR
 
1,880

 
5.68%
 
07/13/07
 
03/12/17
 
(140
)
Interest rate swap
 
1 month LIBOR
 
77,621

 
5.58%
 
06/26/07
 
04/25/17
 
(3,657
)
Interest rate swap
 
1 month LIBOR
 
1,726

 
5.65%
 
07/05/07
 
07/15/17
 
(153
)
Interest rate swap
 
1 month LIBOR
 
3,850

 
5.65%
 
07/26/07
 
07/15/17
 
(340
)
Interest rate swap
 
1 month LIBOR
 
4,023

 
5.41%
 
08/10/07
 
07/25/17
 
(338
)
Total CRE Swaps
 
 
 
$
102,393

 
 
 
 
 
 
 
$
(4,914
)
 
 
 
 
 
 
 
 
 
 
 
 
 
CMBS Swaps
 
 
 
 

 
 
 
 
 
 
 
 

Interest rate swap
 
1 month LIBOR
 
$
371

 
1.30%
 
07/19/2011
 
03/18/2016
 
$
(1
)
Interest rate swap
 
1 month LIBOR
 
1,603

 
1.95%
 
04/01/2011
 
03/18/2016
 
(7
)
Total CMBS Swaps
 
 
 
$
1,974

 
 
 
 
 
 
 
$
(8
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Jumbo Loan Swap
 
 
 
 

 
 
 
 
 
 
 
 
Interest rate swap
 
3 month LIBOR
 
$
17,500

 
1.76%
 
6/4/2015
 
6/4/2020
 
$
(333
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Interest Rate Swaps
 
 
 
$
121,867

 
4.83%
 
 
 
 
 
$
(5,255
)

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107
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Repurchase and Credit Facilities
Borrowings under our repurchase agreement facilities were guaranteed by us or one of our subsidiaries. The following table sets forth certain information with respect to our borrowings as of the periods indicated (dollars in thousands):
 
September 30, 2015
 
December 31, 2014
 
Outstanding
Borrowings
 
 Value of
Collateral
 
Number of
Positions
as Collateral
 
Weighted Average
Interest Rate
 
Outstanding
Borrowings
 
 Value of
Collateral
 
Number of
Positions
as Collateral
 
Weighted Average
Interest Rate
CMBS Term
Repurchase Facility
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Wells Fargo Bank (1)
$
26,326

 
$
32,539

 
27
 
1.41%
 
$
24,967

 
$
30,180

 
33
 
1.35%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CRE Term
Repurchase Facilities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Wells Fargo Bank (2)
78,230

 
128,354

 
6
 
2.21%
 
179,762

 
258,223

 
15
 
2.38%
Deutsche Bank AG (3)
—

 
—

 
—
 
—%
 
25,920

 
39,348

 
2
 
2.78%
Morgan Stanley Bank (4)
7,064


11,753


1

2.80%

—


—


—

—%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Short-Term Repurchase
Agreements - CMBS
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Deutsche Bank Securities, LLC
49,939

 
70,484

 
20
 
1.73%
 
33,783

 
44,751

 
8
 
1.62%
Wells Fargo Securities, LLC
13,609

 
19,960

 
4
 
1.85%
 
10,442

 
17,695

 
1
 
1.66%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential Investments Term Repurchase Facility
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Wells Fargo Bank (5)
4,629

 
5,134

 
6
 
2.75%
 
22,212

 
27,885

 
6
 
1.16%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential Mortgage
Financing Agreements
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
New Century Bank
41,975

 
54,093

 
194
 
2.82%
 
41,387

 
51,961

 
158
 
2.82%
Wells Fargo Bank
55,149

 
100,438

 
163
 
2.75%
 
61,189

 
95,511

 
104
 
2.75%
Totals
$
276,921

 
$
422,755

 
 
 
 
 
$
399,662

 
$
565,554

 
 
 
 

(1)
The Wells Fargo CMBS term repurchase facility borrowing includes $2,000 and $0 of deferred debt issuance costs as of September 30, 2015 and December 31, 2014, respectively.
(2)
The Wells Fargo CRE term repurchase facility borrowing includes $927,000 and $1.7 million of deferred debt issuance costs as of September 30, 2015 and December 31, 2014, respectively.
(3)
The Deutsche Bank term repurchase facility includes $0 and $268,000 of deferred debt issuance costs as of September 30, 2015 and December 31, 2014, respectively.
(4)
The Morgan Stanley CRE term repurchase facility includes $1.8 million and $0 of deferred debt issuance costs as of September 30, 2015 and December 31, 2014, respectively.
(5)
The Wells Fargo residential investments term repurchase facility includes $36,000 of deferred debt issuance costs as of December 31, 2014.
We are in compliance with all financial covenants as defined in the respective agreements as of September 30, 2015.
As the result of an accounting standards update adopted on January 1, 2015, we unlinked our previously linked transactions and disclosed affected asset, liability, income and expense balances at their gross values in our consolidated financial statements. We had no repurchase agreements being accounted for as linked transactions as of September 30, 2015.
The assets in the following table were accounted for as linked transactions as of December 31, 2014. These linked repurchase agreements were not included in borrowings on our consolidated balance sheets.    

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As of December 31, 2014
 
 
Borrowings
Under Linked
Transactions
 
Value of Collateral
Under Linked
Transactions
 
Number
of Positions
as Collateral
Under Linked
Transactions
 
Weighted Average
Interest Rate
of Linked
Transactions
CMBS Term Repurchase Facility
 
 
 
 
 
 
 
 
Wells Fargo Bank
 
$
4,941

 
$
6,371

 
7
 
1.67%
 
 
 
 
 
 
 
 
 
Short-Term Repurchase
Agreements - CMBS
 
 
 
 
 
 
 
 
Wells Fargo Securities, LLC
 
4,108

 
6,233

 
2
 
1.37%
Deutsche Bank Securities, LLC
 
24,348

 
36,001

 
10
 
1.57%
Totals
 
$
33,397

 
$
48,605

 
 
 
 
CRE – Term Repurchase Facility
In September 2015, we entered into a master repurchase and securities agreement (the "Morgan Stanley Facility”) with Morgan Stanley Bank, NA to finance the origination of commercial real estate loans. We paid a commitment fee of 0.65% of the maximum facility amount, as well as other standard closing costs. The Morgan Stanley Facility has a maximum capacity of $250.0 million and an initial three year term that expires on September 10, 2018 with annual one year extension options, and an interest rate of one month LIBOR plus an applicable spread ranging from 2.25% to 2.75%. Morgan Stanley charges an unused fee of 0.50% if the average daily outstanding borrowings are less than or equal to 50% of the facility amount, and of 0.25% if the amount the average daily outstanding borrowings are greater than 50% but less than 65% of the facility amount. Morgan Stanley has agreed to waive this unused fee until January 2016.

The Morgan Stanley Facility contains events of default (subject to certain materiality thresholds and grace periods) customary for this type of financing arrangement, including but not limited to: payment defaults; a change of control of our business; breaches of covenants and/or certain representations and warranties; an adverse judgment against our business. The remedies for such events of default are also customary for this type of transaction and include the acceleration of the principal amount outstanding under the Morgan Stanley Facility and the liquidation of assets subject to the facility by Morgan Stanley. We were in compliance with all financial covenants under the terms of the guarantee as of September 30, 2015.
Residential Investments – Term Repurchase Facility
In June 2014, our wholly-owned subsidiaries, RCC Residential Portfolio, Inc. and RCC Residential Portfolio TRS, Inc., entered into a master repurchase and securities agreement with Wells Fargo Bank, or Wells Fargo, to be used as term repurchase facilities to finance the purchase of highly-rated residential investment assets.
During the most recent of this facility's five amendments, which was entered into with Wells Fargo on September 20, 2015, the Company extended the facility's termination date to September 20, 2016. Over the course of the agreement's five amendments, we also reduced the facility's maximum borrowing amount, from a total of $285.0 million at December 31, 2014 to $30.0 million with respect to certificates of trust and $0 with respect to residential mortgage backed securities as of September 30, 2015. In July 2015, a waiver on the non-usage fee charged by Wells Fargo on this facility expired, and as a result, we reduced the facility's maximum capacity in order to minimize the impact of these fees on our income statement. The facility currently charges a fee for unused balance of 25 basis points on the difference between a threshold equal to 40% of the maximum borrowing amount with respect to certificates of trust and the average daily borrowing balance of that month. There were no other material changes to the agreement over the course of the five amendments.
Residential Mortgage Financing Agreements
Our subsidiary, Primary Capital Mortgage, or PCM, has master repurchase agreements with New Century Bank d/b/a Customer's Bank, or New Century, and Wells Fargo Bank, NA, or Wells Fargo, to finance the acquisition of residential mortgage loans.
In August 2015, PCM amended its agreement with New Century to extend the facility's termination date to August 29, 2016, with no other material changes made to the facility's terms. In September 2015, PCM amended its agreement with Wells Fargo to extend the facility's termination date to September 29, 2016, with no other material changes made to the facility's terms. We were in compliance with all other financial covenant requirements under the agreements as of September 30, 2015.

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Securitizations
As of September 30, 2015, we had executed eleven and currently retain equity in nine of those securitizations. Pertinent information about our securitizations that occurred during the first nine months of 2015 is as follows:
•
In May 2006, we closed Apidos CDO III, a $285.5 million CDO transaction that provided financing for bank loans. The investments held by Apidos CDO III collateralized $262.5 million of senior notes issued by the CDO vehicle. RCC Commercial purchased a $23.0 million equity interest representing 100% of the outstanding preference shares. At December 31, 2014, the notes issued to outside investors had a weighted average borrowing rate of 1.18%. The reinvestment period expired in June 2012 and the CDO has begun paying down the senior notes as principal was collected. Through December 31, 2014, $187.9 million of the Class A-1 senior notes had been paid down. In June 2015, Apidos CDO III was liquidated and, as a result, substantially all of the assets were sold. The remaining assets have been classified as held for sale as of September 30, 2015. Total proceeds from the sale of these assets, plus proceeds from previous sales and paydowns were used to pay down the notes in full.
•
In February 2014, we acquired the rights to manage the assets held by Moselle CLO S.A. and had the right to call the notes anytime after January 6, 2010 until maturity. We exercised the right in November 2014, substantially liquidating the securitization's assets. Proceeds from the sale of these assets, plus those from previous sales and paydowns in the CLO, were used to pay down the senior notes in full.
•
In February 2015, we closed Resource Capital Corp. 2015-CRE3, or RCC 2015-CRE3, a $346.2 million CRE securitization transaction that provided financing for transitional CRE loans. The investments held by RCC 2015-CRE3 collateralized $318.5 million of senior notes issued by the securitization, of which RCC Real Estate, a subsidiary of ours, purchased 100% of the Class E and Class F Senior Notes for $36.4 million at closing. Additionally, Resource Real Estate Funding 2015-CRE3 Investor, LLC, a subsidiary of RCC Real Estate, purchased a $27.7 million equity interest representing 100% of the outstanding preference shares. At September 30, 2015, the notes issued to outside investors had a weighted average borrowing rate of 2.10%. There is no reinvestment period in RCC 2015-3; however, principal repayments, for a period ending in February 2017, may be used to purchase funding participations with respect to existing collateral held outside of the securitizations.
•
In August 2015, we closed Resource Capital Corp. 2015-CRE4, or RCC 2015-CRE4, a $312.9 million CRE securitization transaction that provided financing for transitional CRE loans. The investments held by RCC 2015-CRE4 collateralized $250.3 million of senior notes issued by the securitization. of which RCC Real Estate, a subsidiary of ours. purchased 100% of the Class C senior notes for $26.6 million at closing. Additionally, Resource Real Estate Funding 2015-CRE4 Investor, LLC, a subsidiary of RCC Real Estate purchased a $62.6 million equity interest representing 100% of the outstanding preference shares. At September 30, 2015, the notes issued to outside investors had a weighted average borrowing rate of 1.92%. There is no reinvestment period in RCC 2015-CRE3; however, principal repayments, for a period ending in September 2017, may be used to purchase funding participations with respect to existing collateral held outside of the securitization.
6.0% Convertible Senior Notes
In connection with our one-for-four reverse stock split, the 6.0% Convertible Senior Notes automatically adjusted from 150.1502 shares of common stock per $1,000 principal amount of such notes to 37.53755 shares of common stock per $1,000 principal amount of such notes. The conversion price was adjusted from $6.66 to $26.64 as a result of the stock split.
8% Convertible Senior Notes
In January 2015, we issued and sold in a public offering $100.0 million aggregate principal amount of our 8.0% Convertible Senior Notes due 2020, ("8.0% Convertible Senior Notes"). The 8.0% Convertible Senior Notes are convertible at the option of the holder at a current conversion rate of 187.4414 common shares per $1,000 principal amount of 8.0% Convertible Senior Notes (equivalent to an initial conversion price of 5.34 per common share). Upon conversion of 8.0% Convertible Senior Notes by a holder, the holder will receive cash, our common shares or a combination of cash and our common shares, at our election. In connection with our one-for-four reverse stock split, the 8.0% Convertible Senior Notes automatically adjusted to 46.86035 shares of common stock per $1,000 principal amount of such notes. The conversion price was adjusted from $5.34 to $21.36 as a result of the stock split.
After deducting a $1.0 million underwriting discount and deferred debt issuance costs totaling $2.1 million, we received approximately $97.0 million of net proceeds. In addition,we recorded a discount of $2.5 million on the 8.0% Convertible Senior Notes that reflects the difference between the stated value of the debt and the fair value of the notes as if they were issued without a conversion feature. 


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The aforementioned market discounts and the deferred debt issuance costs will be amortized on a straight-line basis as additional interest expense through maturity on January 15, 2020. Interest on the 8.0% Convertible Senior Notes is paid semi-annually.
Senior Secured Revolving Credit Agreement
On September 18, 2014, our wholly-owned subsidiary, Northport LLC. closed a $110.0 million syndicated senior secured revolving credit facility ("Northport Credit Facility") with JP Morgan as agent bank to finance the origination of middle market and syndicated loans. The availability under the Northport Credit Facility was increased to $125.0 million as of September 30, 2014 and again to $140.0 million with an additional commitment from ING Bank early in March 2015. During the second quarter 2015, we entered into the first and second amendments of the Northport Credit Facility which increased the original commitment from $225.0 million to $300.0 million and secured $85.0 million of additional availability, bringing the total available under the Northport Credit Facility to $225.0 million as of September 30, 2015. As of September 30, 2015, $162.0 million was outstanding on the Northport Credit Facility. Under the first amendment both the ability to access draws on the Northport Credit Facility and maturity have been extended six months until March 31, 2018 and March 31, 2019, respectively.
Under the terms of the amendment the Northport Credit Facility applicable margins increased 25 basis points. The Northport Credit Facility bears interest rates, at the our election, on a per annum basis equal to (i) the applicable LIBOR rate plus 2.75% or (ii) the applicable base rate (prime rate of 3.25% as of September 30, 2015) plus 1.75%. During the nine month period following September 18, 2014, we were charged a commitment fee on any unused balance of 0.375% per annum if the unused balance was greater than 35% of the total commitment or 0.50% per annum if it was less than 35% of the total commitment. Following that period, the commitment fee on any unused balance became 0.375% per annum if the outstanding balance is greater than 35% of the total commitment or 1.00% per annum if the outstanding balance is 35% or less of the total commitment. At September 30, 2015, there was an unused balance of $63.0 million on the facility.
Amounts available to borrow under the Credit Facility are subject to compliance with a borrowing base computation that applies different advance rates to different types of assets held by Northport LLC that are pledged as collateral. Under the Northport Credit Facility, we made certain customary representations and warranties and is required to comply with various covenants, including leverage restrictions, reporting requirements and other customary requirements for similar credit facilities. At September 30, 2015, we are in compliance with all covenants under the agreement. We guarantee Northport LLC's performance of its obligations under the Northport Credit Facility.
Equity
Total equity at September 30, 2015 was $853.3 million and gave effect to $5.0 million of unrealized losses on our cash flow hedges and $5.4 million of net unrealized gains on our available-for-sale portfolio, shown as a component of accumulated other comprehensive income.  Equity at December 31, 2014 was $952.1 million and gave effect to $9.0 million of unrealized losses on cash flow hedges and $15.4 million of net unrealized gains on our available-for-sale portfolio, shown as a component of accumulated other comprehensive loss.  The decrease in equity during the nine months ended September 30, 2015 was principally due to stock repurchases and distributions on our common stock and preferred stock.

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Balance Sheet - Book Value Reconciliation
 
 
Amount
 
Per Share
Book value at December 31, 2014, allocable to common shares (1)(2)
 
$
663,849

 
$
20.28

Net loss allocable to common shares (3)
 
(14,831
)
 
(0.45
)
 
 
 
 
 
Change in other comprehensive income:
 
 
 
 
    Available-for-sale securities
 
(9,559
)
 
(0.30
)
    Derivatives
 
3,962

 
0.13

    Foreign currency conversion
 
(73
)
 
—

Common dividends
 
(62,170
)
 
(1.92
)
Common dividends on unvested shares
 
(1,366
)
 
(0.09
)
Discount on borrowings and deferred debt costs paid
 
2,352

 
0.07

Accretion from share repurchases during the year (4)
 
(15,412
)
 
0.27

Accretion (dilution) from additional shares issued during the year and other (5)
 
1,879

 
(0.04
)
Total net decrease
 
(95,218
)
 
(2.33
)
Book value at September 30, 2015, allocable to common shares (1)(2)(6)
 
$
568,631

 
$
17.95

 
(1)
Per share calculations are reflective of the RSO one-for-four reverse stock split of our common stock as of August 31, 2015, and is as adjusted in the per share amounts disclosed as of September 30, 2015 and December 31, 2014, respectively.
(2)
Per share calculations exclude unvested restricted stock, as disclosed on the consolidated balance sheet, of 694,430 and 505,910 shares as of September 30, 2015 and December 31, 2014, respectively. The denominator for the calculation is 31,675,592 and 32,737,884 as of September 30, 2015 and December 31, 2014, respectively.
(3)
Net loss allocable to common shares includes a $41.1 million charge recognized on a mezzanine loan, LXR, consisting of a provision for loan loss of $38.1 million and $3.0 million write-off of deferred interest receivable through interest income for a per share impact of $(1.26) during the nine months ended September 30, 2015.
(4)
RSO's board authorized a $50.0 million common stock repurchase plan in August 2015. We have purchased 1.2 million shares for $15.4 million through September 30, 2015 pursuant to the plan.
(5)
Includes issuance of common shares from our dividend reinvestment plan of 15,405 shares and 188,520 net change of unvested shares of restricted stock.
(6)
Book value allocable to common shares is calculated as total stockholders' equity of $843.3 million less preferred stock equity of $274.7 million as of September 30, 2015.
Funds from Operations
We evaluate our performance based on several performance measures, including funds from operations, or FFO, and adjusted funds from operations, or AFFO, in addition to net income. We compute FFO in accordance with the standards established by the National Association of Real Estate Investment Trusts as net income (computed in accordance with GAAP), excluding gains or losses on the sale of depreciable real estate, the cumulative effect of changes in accounting principles, real estate-related depreciation and amortization, and after adjustments for unconsolidated/uncombined partnerships and joint ventures.
AFFO is a computation made by analysts and investors to measure a real estate company’s operating performance. We calculate AFFO by adding or subtracting from FFO the impact of non-cash accounting items as well as the effects of items that we deem to be non-recurring in nature. We deem transactions to be non-recurring if a similar transaction has not occurred in the past two years, and if we do not expect a similar transaction to occur in the next two years. We adjust for these non-cash and nonrecurring items to analyze our ability to produce cash flow from on-going operations, which we use to pay dividends to our shareholders. Non-cash adjustments to FFO include the following: impairment losses resulting from fair value adjustments on financial instruments; provisions for loan losses; equity investment gains and losses; straight-line rental effects; share based compensation expense; amortization of various deferred items and intangible assets; gains on sales of property that are wholly owned or owned through a joint venture; the cash impact of capital expenditures that are related to our real estate owned; and REIT tax planning adjustments, which primarily relate to accruals for owned properties for which we made a foreclosure election and adjustments to tax estimates with respect to the final resolution of foreclosed property when it is listed for sale. In addition, we calculate AFFO by adding and subtracting from FFO the realized cash impacts of the following: extinguishment of debt, reissuances of debt, sales of property and capital expenditures.

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Management believes that FFO and AFFO are appropriate measures of our operating performance in that they are frequently used by analysts, investors and other parties in the evaluation of REITs. Management uses FFO and AFFO as measures of its operating performance, and believes they are also useful to investors because they facilitate an understanding of our operating performance apart from non-cash and non-recurring items, that may not necessarily be indicative of current operating performance and that may not allow accurate period to period comparisons of our operating performance.
While our calculations of AFFO may differ from the methodology used for calculating AFFO by other REITs and our FFO and AFFO may not be comparable to FFO and AFFO reported by other REITs, we also believe that FFO and AFFO may provide us and our investors with an additional useful measure to compare our performance with some other REITs. Neither FFO nor AFFO is equivalent to net income or cash generated from operating activities determined in accordance with GAAP. Furthermore, FFO and AFFO do not represent amounts available for management’s discretionary use because of needed capital replacement or expansion, debt service obligations or other commitments or uncertainties. Neither FFO nor AFFO should be considered as an alternative to GAAP net income as an indicator of our operating performance or as an alternative to cash flow from operating activities as a measure of its liquidity.

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The following table reconciles GAAP net income (loss) to FFO and AFFO for the periods presented (in thousands):
 
For the Three Months Ended
 
For the Nine Months Ended
 
September 30,
 
September 30,
 
2015
 
Per Share Data
 
2014
 
Per Share Data
 
2015
 
Per Share Data
 
2014
 
Per Share Data
Net income (loss) allocable to common shares - GAAP
$
6,778

 
$
0.21

 
$
7,328

 
$
0.22

 
$
(14,831
)
 
$
(0.45
)
 
$
37,121

 
$
1.15

Adjustments:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   Real estate depreciation and amortization
—

 
—

 
—

 
—

 
—

 
—

 
506

 
0.02

   (Gains) losses on sales of property (1) 
19

 
—

 
(701
)
 
(0.02
)
 
19

 
—

 
(5,479
)
 
(0.17
)
   Gains on sale of preferred equity
—

 
—

 
(58
)
 
—

 
—

 
—

 
(1,107
)
 
(0.03
)
FFO allocable to common shares
6,797

 
0.21

 
6,569

 
0.20

 
(14,812
)
 
(0.45
)
 
31,041

 
0.97

Adjustments:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Non-cash items:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   Provision (recovery) for loan losses
830

 
0.02

 
528

 
0.02

 
42,570

 
1.30


1,091


0.03

   Amortization of deferred costs
(non real estate) and intangible assets
3,900

 
0.12

 
2,641

 
0.08

 
9,754

 
0.30


5,804


0.18

   Amortization of discount on convertible senior notes
708

 
0.02

 
429

 
0.01

 
1,656

 
0.05

 
1,452

 
0.05

   Equity investment (gains) losses
(961
)
 
(0.03
)
 
(13
)
 
—

 
(1,363
)
 
(0.04
)

1,547

 
0.05

   Share-based compensation
(225
)
 
(0.01
)
 
798

 
0.02

 
1,560

 
0.05


4,497


0.14

   Impairment losses
—

 
—

 
—

 
—

 
59

 
—


—


—

   Unrealized losses (gains) on CMBS
       marks - linked transactions (2)
—

 
—

 
211

 
0.01

 
(235
)
 
(0.01
)
 
(1,991
)
 
(0.06
)
   Unrealized (gains) losses on
trading portfolio
1,054

 
0.03

 
(214
)
 
—

 
(264
)
 
(0.01
)

1,257

 
0.04

   Unrealized (gains) losses on FX transactions
(2,750
)
 
(0.08
)
 
2,687

 
0.08

 
2,101

 
0.06

 
2,541

 
0.08

   Unrealized (gains) losses on derivatives
1,248

 
0.04

 
379

 
0.01

 
2,324

 
0.08


379


0.01

   Straight-line rental adjustments
—

 
—

 
—

 
—

 
—

 
—


2


—

   Loss on resale of debt
332

 
0.01

 
1,867

 
0.06

 
1,403

 
0.04


2,469


0.08

   Change in mortgage
servicing rights valuation reserve
900

 
0.03

 
—

 
—

 
650


0.02


300


0.01

 Change in residential loan warranty reserve
201

 
—

 
—

 
—

 
601

 
0.02

 
—

 
—

Dead deal costs
—

 
—

 
—

 
—

 
399

 
0.01

 
—

 
—

REIT tax planning adjustments
—

 
—

 
293

 
0.01

 
317

 
0.01

 
1,420

 
0.04

Cash items:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   Gains (losses) on sale of property (1) 
(19
)
 
—

 
701

 
0.02

 
(19
)
 
—

 
5,479

 
0.17

   Gains on sale of preferred equity
—

 
—

 
58

 
—

 
—

 
—

 
1,107

 
0.03

   Gains (losses) on extinguishment of debt
2,607

 
0.08

 
7,333

 
0.22

 
9,252

 
0.28

 
14,932

 
0.46

   Capital expenditures
—

 
—

 
—

 
—

 
—

 
—

 
(38
)
 
—

AFFO allocable to common shares
$
14,622

 
$
0.44

 
$
24,267

 
$
0.74

 
$
55,953

 
$
1.71

 
$
73,289

 
$
2.28

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Weighted average shares – diluted
32,951

 
 
 
32,807

 
 
 
32,726

 
 
 
32,176

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
AFFO per share – diluted 
$
0.44

 
 
 
$
0.74

 
 
 
$
1.71

 
 
 
$
2.28

 
 
 
(1)
Amount represents gains/losses on sales of owned real estate as well as sales of joint venture real estate interests that were recorded by us on an equity basis.
(2)
Due to a change in accounting guidance, as of January 1, 2015, the concept of linked transactions no longer exists.

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Liquidity and Capital Resources
For the nine months ended September 30, 2015, our principal sources of liquidity were: net proceeds from our 8.0% convertible notes offering on January 13, 2015, of $97.0 million, the return of equity at the close of RCC 2015-CRE3 on February 24, 2015 of $78.0 million, the return of equity at the close of RCC 2015-CRE4 on August 18, 2015 of $29.7 million, liquidation of Moselle CLO S.A. which returned $30.0 million (which includes $1.0 million of proceeds from forward currency contracts), liquidation of Apidos CDO III in June 2015 which returned $12.8 million of principal, cash flow from operations and $3.0 million of net proceeds from the sale of our 8.25% Series B Preferred Stock through our at the market, or ATM, program in January 2015. These sources of liquidity principally constitute our $104.7 million of unrestricted cash at September 30, 2015.  In addition, we had capital available through a CMBS term facility to help finance the purchase of CMBS securities of $73.7 million and $562.0 million combined from two CRE term facilities for the origination of commercial real estate loans.
In June 2014, we entered into a master repurchase and securities agreement with Wells Fargo Bank, NA.  The agreement allowed for the transfer of our rights, title and interest in certain residential mortgage backed securities and certificates of trust to Wells Fargo in exchange for the transfer of funds by Wells Fargo to us.  The agreement also allows for Wells Fargo to transfer back to us those assets at either a certain date or on demand in exchange for the return of funds from us to Wells Fargo. On August 21, 2015, we amended the agreement with Wells Fargo to extend the facility's termination date to October 20, 2015, and reduced the facility's maximum borrowing amount with respect to certificates of trust from $165.0 million to $75.0 million, with no other material changes to the agreement. During the third quarter, Wells Fargo informed us they were no longer able to waive unused fees on the facility, which drove our decision to reduce the facility's maximum capacity. The facility currently charges an unused fee of of 25 basis points on the difference between a threshold equal to 40% of the maximum borrowing amount with respect to certificates of trust and the average daily borrowing balance of that month.
On September 20, 2015, we entered into a master repurchase and securities agreement (the "Morgan Stanley Facility”) with Morgan Stanley Bank, NA to finance the origination of commercial real estate loans. We paid a commitment fee of 0.65% of the maximum facility amount, as well as other standard closing costs. The Morgan Stanley Facility has a maximum capacity of $250.0 million and an initial three year term that expires on September 10, 2018 with annual one year extension options, and an interest rate of one month LIBOR plus an applicable spread ranging from 2.25% to 2.75%. Morgan Stanley charges an unused fee of 0.50% if the average daily outstanding borrowings are less than or equal to 50% of the facility amount, and of 0.25% if the amount the average daily outstanding borrowings are greater than 50% but less than 65% of the facility amount. Morgan Stanley has agreed to waive this unused fee until January 2016.

The Morgan Stanley Facility contains events of default (subject to certain materiality thresholds and grace periods) customary for this type of financing arrangement, including but not limited to: payment defaults; breaches of covenants and/or certain representations and warranties; adverse judgments against our business; or a default involving the failure to pay or acceleration of our monetary obligations. The remedies for such events of default are also customary for this type of transaction and include the acceleration of the principal amount outstanding under the Morgan Stanley Facility and the liquidation of assets subject to the facility by Morgan Stanley. We were in compliance with all financial covenants under the terms of the guarantee as of September 30, 2015.
During the second quarter 2015, we entered into the first and second amendments of Northport TRS LLC's Senior Secured Revolving Credit Agreement, or Northport Credit Facility, which increased the original commitment from $225.0 million to $300.0 million and secured $85.0 million of additional availability, bringing the total available under the Northport Credit Facility to $225.0 million as of September 30, 2015. As of September 30, 2015, $162.0 million was outstanding on the Northport Credit Facility. Under the first amendment both the ability to access to draws on the Northport Credit Facility and maturity have been extended six months until March 31, 2018 and March 31, 2019 respectively. At September 30, 2015, there was an unused balance of $63.0 million on the facility.    
For the year ended December 31, 2014, our principal sources of liquidity were net proceeds from the June offering of our 8.625% Series C Preferred Stock of $116.2 million and $56.6 million of net proceeds from the sale of our 8.25% Series B Preferred Stock and 8.50% Series A Preferred Stock through our ATM program. For the year ended December 31, 2014, we also received $30.3 million of sale proceeds from our common stock DRIP. We ended the year with $79.9 million of unrestricted cash on hand, availability of $392.6 million on our CRE term facilities and availability of $70.1 million on our CMBS term facility as of December 31, 2014.
Our on-going liquidity needs consist principally of funds to make investments, make debt repurchases, make distributions to our stockholders and pay our operating expenses, including management fees.  Our ability to meet our on-going liquidity needs will be subject to our ability to generate cash from operations and, with respect to our investments, our ability to maintain and/or obtain additional debt financing and equity capital together with the funds referred to above.  

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During the past 14 months, we have been meeting a significant portion of our debt funding requirements for CRE loans through securitizations. In February 2015, we closed a $346.2 million CRE securitization, our third in the past 17 months, and in August 2015, we closed a $319.2 million CRE securitization, our fourth in the past 21 months, which brings our total to just in excess of $1.3 billion of mortgage loans financed during that period. We expect to derive substantial operating cash from our equity investments in the four newest securitizations, which do not have the same asset and interest coverage tests as are required by our CDOs. These CRE securitizations do not have a reinvestment periods; however, principal payments, for a stipulated period, may be used to purchase funding participations with respect to existing collateral held outside of the securitizations. This will allow us to recycle some capital repaid and convert the designated principal for funded companion participation acquisition cash which would otherwise be used to pay down the most senior notes and reduce leverage and potential returns within the securitization.
Historically, we have financed a substantial portion of our portfolio investments through CDOs that essentially match the maturity and repricing dates of these financing vehicles with the maturities and repricing dates of our investments, and, in view of current market conditions, we expect to continue to seek CDO financing for at least the next 12 months.  We derive substantial operating cash from our equity investments in our CDOs which, if the CDOs fail to meet certain tests, will cease.  Through September 30, 2015, we have not experienced difficulty in maintaining our existing CDO financing and have passed all of the critical tests required by these financings.  However, we cannot assure you that we will continue CDO financing to meet all such critical tests in the future.  If we are unable to renew, replace or expand our sources of existing financing on substantially similar terms, we may be unable to implement our investment strategies successfully and may be required to liquidate portfolio investments.  If required, a sale of portfolio investments could be at prices lower than the carrying value of such assets, which would result in losses and reduced income.
The following table sets forth the distributions made and coverage test summaries for each of the Company's securitizations for the periods presented (in thousands):
Name
 
Cash Distributions
 
Annualized Interest Coverage Cushion
 
Overcollateralization Cushion
 
 
Nine Months Ended 
 September 30,
 
Year Ended
December 31,
 
As of September 30,
 
As of September 30,
 
As of Initial
Measurement Date
 
 
2015 (1)
 
2014 (1)
 
2015 (2) (3)
 
2015 (4)
 
Apidos III (5)
 
$
13,932

 
$
3,551

 
$
—

 
$
—

 
$
—

Apidos Cinco
 
$
5,268

 
$
9,757

 
$
4,463

 
$
21,450

 
$
17,774

RREF 2006-1
 
$
2,623

 
$
10,172

 
$
3,471

 
$
91,865

 
$
24,941

RREF 2007-1
 
$
3,641

 
$
7,630

 
$
3,169

 
$
66,280

 
$
26,032

RCC CRE Notes 2013
 
$
7,464

 
$
11,860

 
N/A

 
N/A

 
N/A

RCC 2014-CRE2 (6)
 
$
11,831

 
$
5,463

 
N/A

 
$
20,663

 
$
20,663

RCC 2015-CRE3 (7)
 
$
6,202

 
N/A

 
N/A

 
$
20,313

 
$
20,313

RCC 2015-CRE4 (8)
 
$
382

 
N/A

 
N/A

 
$
9,397

 
$
9,397

Moselle CLO S.A. (9)
 
$
29,099

 
$
2,891

 
N/A

 
N/A

 
N/A

* The above table does not include Apidos CDO I, Apidos CLO VIII or Whitney CLO I, as these CLOs were previously called and were substantially liquidated. No securitizations had open reinvestment periods as of September 30, 2015.
 
(1)
Distributions on retained equity interests in securitizations (comprised of note investments and preference share ownership) and principal paydowns on notes owned; RREF 2006-1 includes $0 and $4.2 million of principal paydowns during the nine months ended September 30, 2015 and the year ended December 31, 2014, respectively.
(2)
Interest coverage includes annualized amounts based on the most recent trustee statements.
(3)
Interest coverage cushion represents the amount by which annualized interest income expected exceeds the annualized amount payable on all classes of securitization notes senior to the Company's preference shares.
(4)
Overcollateralization cushion represents the amount by which the collateral held by the securitization issuer exceeds the maximum amount required.
(5)
Apidos III was liquidated on June 12, 2015 and substantially all of its assets were sold. The Company received a return of principal of $12.8 million through September 30, 2015.
(6)
Resource Capital Corp. 2014-CRE2 has no reinvestment period; however, principal repayments, for a period ending in July 2016, may be designated to purchase loans held outside of the securitization that represent the funded commitments of existing collateral in the securitization that were not funded as of the date the securitization was closed. Additionally, the indenture contains no interest coverage test provisions.

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(7)
Resource Capital Corp. 2015-CRE3 closed on February 24, 2015; the first distribution was in March 2015. There is no reinvestment period; however, principal repayments, for a period ending in February 2017, may be designated to purchase loans held outside of the securitization that represent the funded commitments of existing collateral in the securitization that were not funded as of the date the securitization was closed. Additionally, the indenture contains no interest coverage test provisions.
(8)
Resource Capital Corp. 2015-CRE4 closed on August 18, 2015; the first distribution was in September 2015. There is no reinvestment period; however, principal repayments, for a period ending in September 2017, may be designated to purchase loans held outside of the securitization that represent the funded commitments of existing collateral in the securitization that were not funded as of the date the securitization was closed. Additionally, the indenture contains no interest coverage test provisions.
(9)
Moselle CLO S.A. was acquired on February 24, 2014 and the reinvestment period for this securitization expired prior to the acquisition. In the fourth quarter of 2014 the Company began to liquidate Moselle CLO S.A. and, by January 2015, all of the assets were sold.
At October 31, 2015, after paying our third quarter 2015 common and preferred stock dividends, our liquidity is derived from three primary sources:
•
unrestricted cash and cash equivalents of $76.5 million, restricted cash of $1.7 million in margin call accounts;
•
capital available for reinvestment in one of our CRE CDOs of $250,000 and two of our CRE securitizations of $6.7 million, all of which is designated to finance future funding commitments on CRE loans; and
•
loan principal repayments of $16.9 million that will pay down outstanding CLO note balances as well as interest collections of $1.8 million.
In addition, at October 31, 2015, we have financing of $474.3 million available through two term financing facilities to finance the origination of CRE loans and $74.1 million available through a term financing facility to finance the purchase of CMBS. We also have $50.9 million available through a middle market syndicated revolving credit facility to finance the direct origination of middle market loans and purchase of syndicated bank loans.
Our leverage ratio may vary as a result of the various funding strategies we use.  As of September 30, 2015 and December 31, 2014, our leverage ratio was 2.2 times and 1.8 times, respectively.  Our leverage has increased as a result of the increase in borrowings with the issuance of $100.0 million 8.0% Convertible Senior Notes, increased leverage on our CRE portfolio with the close of RCC 2015-CRE3 in February 2015 and RCC 2015-CRE4 in August 2015 and increased borrowings on our Northport JPM syndicate facility offset by a reduction of the Wells CRE term facility combined with run-off of CDO and CLO borrowings.

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Distributions
In order to maintain our qualification as a REIT and to avoid corporate-level income tax on our income, we intend to make regular quarterly distributions of all or substantially all of our net REIT taxable income to holders of our common stock.  This requirement can impact our liquidity and capital resources. 
The following tables presents dividends declared on a per share basis for the three and nine months ended September 30, 2015 and year ended December 31, 2014.
Common Stock

 
Date Paid
 
Total
Dividend Paid
 
Dividend
Per Share
 
 
 
 
(in thousands)
 
 
2015
 
 
 
 
 
 
March 31
 
April 28
 
$
21,444

 
$
0.64

June 30
 
July 28
 
$
21,426

 
$
0.64

September 30
 
October 28
 
$
20,667

 
$
0.64

2014
 
 
 
 
 
 
March 31
 
April 28
 
$
25,921

 
$
0.80

June 30
 
July 28
 
$
26,179

 
$
0.80

September 30
 
October 28
 
$
26,629

 
$
0.80

December 31
 
January 28, 2015
 
$
26,563

 
$
0.80

Preferred Stock
Series A
 
Series B
 
Series C

 
Date Paid
 
Total
Dividend Paid
 
Dividend
Per Share
 
Date Paid
 
Total
Dividend Paid
 
Dividend
Per Share
 
Date Paid
 
Total
Dividend Paid
 
Dividend
Per Share
 
 
 
 
(in thousands)
 

 
 
 
(in thousands)
 
 
 
 
 
(in thousands)
 
 
2015
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
March 31
 
April 30
 
$
568

 
$
0.53125

 
April 30
 
$
2,960

 
$
0.515625

 
April 30
 
$
2,588

 
$
0.539063

June 30
 
July 30
 
$
568

 
$
0.53125

 
July 30
 
$
2,960

 
$
0.515625

 
July 30
 
$
2,588

 
$
0.539063

Sept. 30
 
Oct. 30
 
$
568

 
$
0.53125

 
Oct. 30
 
$
2,960

 
$
0.515625

 
Oct. 30
 
$
2,588

 
$
0.539063

2014
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
March 31
 
April 30
 
$
463

 
$
0.53125

 
April 30
 
$
2,057

 
$
0.515625

 
—
 
—

 
—

June 30
 
July 30
 
$
537

 
$
0.53125

 
July 30
 
$
2,378

 
$
0.515625

 
July 30
 
$
1,437

 
$
0.299479

September 30
 
October 30
 
$
537

 
$
0.53125

 
October 30
 
$
2,430

 
$
0.515625

 
October 30
 
$
2,588

 
$
0.539063

December 31
 
January 30, 2015
 
$
568

 
$
0.53125

 
January 30, 2015
 
$
2,888

 
$
0.515625

 
January 30, 2015
 
$
2,588

 
$
0.539063


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Contractual Obligations and Commitments
 
Contractual Commitments (9)
 
(dollars in thousands)
 
Payments due by Period
 
Total
 
Less than 1 year
 
1 - 3 years
 
3- 5 years
 
More than 5 years
CDOs (1) 
$
332,382

 
$
57

 
$
—

 
$
152,310

 
$
180,015

CRE Securitizations
856,710

 
—

 
—

 
—

 
856,710

Repurchase Agreements(2) 
276,921

 
221,772

 
55,149

 
—

 
—

Unsecured Junior Subordinated Debentures (3) 
51,360

 
—

 
—

 


 
51,360

6.0 % Convertible Notes (4)
109,661

 
—

 
—

 
109,661

 
—

8.0 % Convertible Notes (5)
95,115

 
—

 
—

 
95,115

 
—

Unfunded Commitments on CRE Loans (6)
103,948

 
—

 
103,948

 
—

 
—

Revolver Draws Available on Middle Market Loans (7)
10,325

 
1,645

 
6,730

 
1,950

 
—

Base Management Fees (8) 
12,374

 
12,374

 
—

 
—

 
—

Senior Secured Revolving Credit Facility
158,742

 
—

 
—

 
158,742

 
—

Total
$
2,007,538

 
$
235,848

 
$
165,827

 
$
517,778

 
$
1,088,085

 
(1)
Contractual commitments do not include $14.0 million, $8.8 million and $13.9 million of interest expense payable through the stated maturity dates of May 2020, August 2046, and September 2046, respectively, on Apidos Cinco CDO, RREF 2006-1, and RREF 2007-1.  The maturity dates represent the contractually stated maturity dates of the CDO notes.
(2)
Contractual commitments include $111,000 of interest expense payable through the maturity dates on our repurchase agreements.
(3)
Contractual commitments do not include $42.6 million and $43.6 million of estimated interest expense payable through the maturity dates of June 2036 and October 2036, respectively, on our trust preferred securities.
(4)
Contractual commitments do not include $22.2 million of interest expense payable through the maturity date of December 1, 2018 on our 6.0% convertible senior notes.
(5)
Contractual commitments do not include $34.8 million of interest expense payable through the maturity date of January 15, 2020 on our 8.0% convertible senior notes.
(6)
Unfunded commitments on our originated CRE loans generally fall into two categories: (1) pre-approved capital improvement projects; and (2) new or additional construction costs subject, in each case, to the borrower meeting specified criteria. Upon completion of the improvements or construction, we would receive additional loan interest income on the advanced amount.
(7)
The financing or credit agreements on our originated middle market loans, in some cases, allow for subsequent advances.  All advances require compliance with the contractual criteria and terms as specifically described in the individual financing or credit agreement, and therefore are subject to the approval of the appropriate portfolio manager.  Loans earn income, typically in the form of interest and fees, as specifically outlined in the documentation of each loan. 
(8)
Calculated only for the next 12 months based on our current equity, as defined in our management agreement.  Our management agreement also provides for an incentive fee arrangement that is based on operating performance.  Because the incentive fee is not a fixed and determinable amount, it is not included in this table.
(9)
Contractual commitments on borrowings are presented net of deferred debt issuance costs.
At September 30, 2015, we had ten interest rate swap contracts with a notional value of $121.9 million.  These contracts are fixed-for-floating interest rate swap agreements under which we contracted to pay a fixed rate of interest for the term of the hedge and will receive a floating rate of interest.  As of September 30, 2015, the average fixed pay rate of our interest rate hedges was 4.83% and our receive rate was either one-month or three-month, LIBOR, or 0.19% or 0.33%, respectively.
Off-Balance Sheet Arrangements
General
As of September 30, 2015, we did not maintain any relationships with unconsolidated entities or financial partnerships that were established for the purpose of facilitating off-balance sheet arrangements or contractually narrow or limited purposes, although we do have interests in unconsolidated entities not established for those purposes. Except as set forth below, as of September 30, 2015, we had not guaranteed obligations of any such unconsolidated entities or entered into any commitment or letter of intent to provide additional funding to any such entities.


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Unfunded Commercial Real Estate Loan Commitments
In the ordinary course of business, we make commitments to borrowers whose loans are in our commercial real estate loan portfolio to provide additional loan funding in the future. These commitments generally fall into two categories: (1) pre-approved capital improvement projects; and (2) new or additional construction costs. Disbursement of funds pursuant to these commitments is subject to the borrower meeting pre-specified criteria. Upon disbursement of funds, we receive loan interest income on any such advanced funds. As of September 30, 2015, we had 49 loans with unfunded commitments totaling $103.9 million, of which $1.7 million will be funded by restricted cash in RCC CRE Notes 2013, $5.0 million will be funded by restricted cash at RCC 2015-CRE4, and $250,000 will be funded by restricted cash in RREF CDO 2007-1; we intend to fund the remaining $97.0 million through principal repayments on other loans in our portfolio and the ability to fund in our newest securitizations within a specified time period and cash flow from normal operating activities. These commitments are subject to the same underwriting requirements and ongoing portfolio maintenance as are the on-balance sheet financial instruments that we hold. Since these commitments may expire without being drawn upon, the total commitment amount does not necessarily represent future cash requirements.
Unfunded Middle Market Loan Commitments
During 2014, we began originating middle-market loans through RCC Commercial, Inc and Resource TRS, LLC. In September 2014, RCC Commercial and Resource TRS, LLC transferred all of the middle-market loans to a newly formed subsidiary of ours, Northport LLC. Resource America is paid origination fees in connection with our middle-market lending operations, and such fees may not exceed 2% of the loan balance for any loan originated. The executed agreements between us and borrowers within our portfolio contain commitments to provide additional loan funding in the future. These commitments generally fall into two categories: (1) revolving credit facility; and (2) additional notes commitments. Disbursement of funds pursuant to these commitments are subject to the borrower meeting pre-specified criteria and in some instances at our discretion. Upon disbursement of funds, we receive loan interest income on any such advanced funds. As of September 30, 2015, we had five loans with unfunded commitments totaling $10.3 million, all of which would be funded by Northport LLC. We intend to fund these commitments through cash flow from normal operating activities. Since these commitments may expire without being drawn upon, the total commitment amount does not necessarily represent future cash requirements.
ITEM 3 .
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As of September 30, 2015, the primary component of our market risk was interest rate risk, as described below. While we do not seek to avoid risk completely, we do seek to assume risk that can be quantified from historical experience, to actively manage that risk, to earn sufficient compensation to justify assuming that risk and to maintain capital levels consistent with the risk we undertake or to which we are exposed.
Effect on Fair Value
A component of interest rate risk is the effect changes in interest rates will have on the fair value of our assets. We face the risk that the fair value of our assets will increase or decrease at different rates than that of our liabilities, including our hedging instruments.
We primarily assess our interest rate risk by estimating the duration of our assets and the duration of our liabilities. Duration essentially measures the market price volatility of financial instruments as interest rates change. We generally calculate duration using various financial models and empirical data. Different models and methodologies can produce different duration numbers for the same securities.

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The following sensitivity analysis tables show, at September 30, 2015 and December 31, 2014, the estimated impact on the fair value of our interest rate-sensitive investments and liabilities of changes in interest rates, assuming rates instantaneously fall 100 basis points and rise 100 basis points (dollars in thousands):
 
September 30, 2015
 
Interest rates fall 100
basis points
 
Unchanged
 
Interest rates rise 100
basis points
CMBS – private placement (1):
 
 
 
 
 
Fair value
$
160,987

 
$
159,490

 
$
158,079

Change in fair value
$
1,497

 
 

 
$
(1,411
)
Change as a percent of fair value
0.94
 %
 
 

 
(0.88
)%
 
 
 
 
 
 
Hedging instruments:
 

 
 

 
 

Fair value
$
(6,321
)
 
$
(5,255
)
 
$
(3,067
)
Change in fair value
$
(1,066
)
 
 

 
$
2,188

Change as a percent of fair value
(20.29
)%
 
 

 
41.64
 %
 
December 31, 2014
 
Interest rates fall 100
basis points
 
Unchanged
 
Interest rates rise 100
basis points
CMBS – private placement (1):
 
 
 
 
 
Fair value
$
197,580

 
$
194,823

 
$
192,146

Change in fair value
2,757

 
 
 
(2,677
)
Change as a percent of fair value
1.42
 %
 
 
 
(1.37
)%
 
 
 
 
 
 
Hedging instruments:
 

 
 

 
 

Fair value
$
(9,883
)
 
$
(8,680
)
 
$
(6,847
)
Change in fair value
(1,203
)
 
 
 
1,833

Change as a percent of fair value
(13.86
)%
 
 
 
21.12
 %
 
(1)Includes the fair value of available-for-sale investments that are sensitive to interest rate change.
For purposes of the table, we have excluded our investments with variable interest rates that are indexed to LIBOR. Because the variable rates on these instruments are short-term in nature, we are not subject to material exposure to movements in fair value as a result of changes in interest rates.
It is important to note that the impact of changing interest rates on fair value can change significantly when interest rates change beyond 100 basis points from current levels. Therefore, the volatility in the fair value of our assets could increase significantly when interest rates change beyond 100 basis points from current levels. In addition, other factors impact the fair value of our interest rate-sensitive investments and hedging instruments, such as the shape of the yield curve, market expectations as to future interest rate changes and other market conditions. Accordingly, in the event of changes in actual interest rates, the change in the fair value of our assets would likely differ from that shown above and such difference might be material and adverse to our stockholders.
Risk Management
To the extent consistent with maintaining our status as a REIT, we seek to manage our interest rate risk exposure to protect our portfolio of fixed-rate commercial real estate mortgages and CMBS and related debt against the effects of major interest rate changes. We generally seek to manage our interest rate risk by:
•
monitoring and adjusting, if necessary, the reset index and interest rate related to our mortgage-backed securities and our borrowings;

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•
attempting to structure our borrowing agreements for our CMBS to have a range of different maturities, terms, amortizations and interest rate adjustment periods; and
•
using derivatives, financial futures, swaps, options, caps, floors and forward sales, to adjust the interest rate sensitivity of our fixed-rate commercial real estate mortgages and CMBS and our borrowing which we discuss in “Financial Condition-Hedging Instruments.”


ITEM 4.
CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Securities Exchange Act of 1934 reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
Under the supervision of our Chief Executive Officer and Chief Financial Officer, we have carried out an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective at the reasonable assurance level.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the three and nine months ended September 30, 2015 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.



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PART II
ITEM 1.
LEGAL PROCEEDINGS

In September 2015, Daren Levin filed a putative class action in the United States District Court for the Southern District of New York on behalf of all persons who purchased our common stock between March 2, 2015 and August 4, 2015.  The complaint alleges that we and certain of our officers and directors materially misrepresented certain risks of our commercial loan portfolio and our processes and controls for assessing the quality of our portfolio.  The complaint seeks unspecified damages as well as costs and attorneys’ fees.  We believe the complaint is without merit and intend to defend ourselves vigorously.

ITEM 6.
EXHIBITS
Exhibit No.
 
Description
3.1(a)
 
Restated Certificate of Incorporation of Resource Capital Corp. (1)
3.1(b)
 
Articles of Amendment of Restated Certificated of Incorporation of Resource America, Corp. (29)
3.1(c)
 
Articles Supplementary 8.50% Series A Cumulative Redeemable Preferred Stock. (17)
3.1(d)
 
Articles Supplementary 8.50% Series B Cumulative Redeemable Preferred Stock. (28)
3.1(e)
 
Articles Supplementary 8.25% Series B Cumulative Redeemable Preferred Stock. (22)
3.1(f)
 
Articles Supplementary 8.625% Fixed-to-Floating Series C Cumulative Redeemable Preferred Stock. (9)
3.2
 
Amended and Restated Bylaws of Resource Capital Corp. (as Amended January 31, 2014) (12)
4.1(a)
 
Form of Certificate for Common Stock for Resource Capital Corp. (1)
4.1(b)
 
Form of Certificate for 8.50% Series A Cumulative Redeemable Preferred Stock. (13)
4.1(c)
 
Form of Certificate for 8.25% Series B Cumulative Redeemable Preferred Stock (18)
4.1(d)
 
Form of Certificate for 8.625% Fixed-to-Floating Series C Cumulative Redeemable Preferred Stock. (9)
4.2(a)
 
Junior Subordinated Indenture between Resource Capital Corp. and Wells Fargo Bank, N.A., dated May 25, 2006. (2)
4.2(b)
 
Amendment to Junior Subordinated Indenture and Junior Subordinated Note due 2036 between Resource Capital Corp. and Wells Fargo Bank, N.A., dated October 26, 2009 and effective September 30, 2009. (6)
4.3(a)
 
Amended and Restated Trust Agreement among Resource Capital Corp., Wells Fargo Bank, N.A., Wells Fargo Delaware Trust Company and the Administrative Trustees named therein, dated May 25, 2006. (2)
4.3(b)
 
Amendment to Amended and Restated Trust Agreement and Preferred Securities Certificate among Resource Capital Corp., Wells Fargo Bank, N.A. and the Administrative Trustees named therein, dated October 26, 2009 and effective September 30, 2009. (6)
4.4
 
Amended Junior Subordinated Note due 2036 in the principal amount of $25,774,000, dated October 26, 2009. (6)
4.5(a)
 
Junior Subordinated Indenture between Resource Capital Corp. and Wells Fargo Bank, N.A., dated September 29, 2006. (3)
4.5(b)
 
Amendment to Junior Subordinated Indenture and Junior Subordinated Note due 2036 between Resource Capital Corp. and Wells Fargo Bank, N.A., dated October 26, 2009 and effective September 30, 2009. (6)
4.6(a)
 
Amended and Restated Trust Agreement among Resource Capital Corp., Wells Fargo Bank, N.A., Wells Fargo Delaware Trust Company and the Administrative Trustees named therein, dated September 29, 2006. (3)
4.6(b)
 
Amendment to Amended and Restated Trust Agreement and Preferred Securities Certificate among Resource Capital Corp., Wells Fargo Bank, N.A. and the Administrative Trustees named therein, dated October 26, 2009 and effective September 30, 2009. (6)
4.7
 
Amended Junior Subordinated Note due 2036 in the principal amount of $25,774,000, dated October 26, 2009. (6)
4.8(a)
 
Senior Indenture between the Company and Wells Fargo Bank, National Association, as Trustee, dated October 21, 2013. (25)
4.8(b)
 
First Supplemental Indenture between the Company and Wells Fargo Bank, National Association, as Trustee (including the form of 6.00% Convertible Senior Note due 2018). (25)
4.8(c)
 
Form of 6.00% Convertible Senior Note due 2018 (included in Exhibit 4.8(b)). (27)
4.8(d)
 
Second Supplemental Indenture between the Company and Wells Fargo Bank, National Association from (including Form of 8.00% Convertible Senior Note due 2020. (27)
4.8(e)
 
Form of 8.00% Convertible Senior Note due 2020 (included I Exhibit 4.8(b)). (27)
10.1(a)
 
Second Amended and Restated Management Agreement between Resource Capital Corp, Resource Capital Manager, Inc. and Resource America, Inc. (28)

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10.1(b)
 
Amendment No.1 to Second Amended and Restated Management Agreement between Resource Capital Corp, Resource Capital Manager, Inc. and Resource America, Inc. dated as of November 7, 2013.(4)
10.2(a)
 
2005 Stock Incentive Plan. (1)
10.2(b)
 
Form of Stock Award Agreement. (8)
10.2(c)
 
Form of Stock Option Agreement. (8)
10.3(a)
 
Amended and Restated Omnibus Equity Compensation Plan. (7)
10.3(b)
 
Form of Stock Award Agreement. (27)
10.3(c)
 
Form of Stock Award Agreement (for employees with Resource America, Inc. employment agreements). (27)
10.4
 
Services Agreement between Resource Capital Asset Management, LLC and Apidos Capital Management, LLC, dated February 24, 2011. (11)
10.5
 
8.50% Series A Cumulative Redeemable Preferred Stock, 8.25% Series B Cumulative Redeemable Preferred Stock, 8.625% Fixed-to-Floating Series C Cumulative Redeemable Preferred Stock At-the-Market Issuance Sales Agreement, dated November 19, 2014 among the Company, Resource Capital Manager Inc. and MLV & Co., LLC. (26)
10.6
 
Senior Secured Revolving Credit Agreement, dated September 18, 2014, among Northport TRS, LLC, as borrower, Resource Capital Corp., as guarantor, JP Morgan Chase Bank, N.A., as administrative agent, and the lenders thereto. (19)
12.1
 
Statements re Computation of Ratios
31.1
 
Rule 13a-14(a)/Rule 15d-14(a) Certification of Chief Executive Officer.
31.2
 
Rule 13a-14(a)/Rule 15d-14(a) Certification of Chief Financial Officer.
32.1
 
Certification Pursuant to 18 U.S.C. Section 1350.
32.2
 
Certification Pursuant to 18 U.S.C. Section 1350.
 99.1(a)
 
Master Repurchase and Securities Contract by and among RCC Commercial, Inc., RCC Real Estate Inc. and Wells Fargo Bank, National Association, dated February, 1, 2011. (10)
99.1(b)
 
Guarantee Agreement made by Resource Capital Corp. in favor of Wells Fargo Bank, National Association, dated February 1, 2011. (10)
99.2(a)
 
Master Repurchase and Securities Contract for $150,000,000 between RCC Real Estate SPE 4, LLC, as Seller, and Wells Fargo Bank, National Association, as Buyer, Dated February 27, 2012. (14)
99.2(b)
 
Guarantee dated as of September 10, 2015, made by Resource Capital Corp., as guarantor, in favor of Morgan Stanley Bank, N.A. (30)
99.2(c)
 
First Amendment to Master Repurchase and Securities Contract and Other Documents between RCC Real Estate SPE 4, LLC, as seller, and Wells Fargo Bank, National Association, as buyer, dated April 2, 2013. (23)
99.3(a)
 
Master Purchase Agreement by and between RCC Real Estate SPE 5, LLC, as, master seller, and Deutsche Bank AG, Cayman Islands Branch, as buyer, dated as of July 19, 2013. (24)
99.3(b)
 
Guaranty made by the Company for the benefit of Deutsche Bank AG, Cayman Islands Branch, dated July 19, 2013. (24)
99.4(a)
 
Master Repurchase and Securities Contract dated as of June 20, 2014 with Well Fargo Bank, National Association.  (5)
99.4(b)
 
Guarantee Agreement dated as of June 20, 2014, made by Resource Capital Corp., as guarantor, in favor of Wells Fargo Bank, National Association. (5)
99.5
 
Federal Income Tax Consequences of our Qualification as a REIT. (20)
99.5 (a)
 
Master Repurchase and Securities Contract Agreement between RCC Real Estate 6, LLC and Morgan Stanley Bank, NA, dated as of September 10, 2015. (30)
101
 
Interactive Data Files
 
(1)
Filed previously as an exhibit to the Company’s registration statement on Form S-11, Registration No. 333-126517.
(2)
Filed previously as an exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2006.
(3)
Filed previously as an exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2006.
(4)
Filed previously as an exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2013.
(5)
Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed on June 26, 2014.
(6)
Filed previously as an exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2009.
(7)
Filed previously as an exhibit to the Company’s Proxy Statement filed on April 16, 2014.
(8)
Filed previously as an exhibit to the Company’s Registration Statement on Form S-11 (File No. 333-132836).
(9)
Filed previously as an exhibit to the Company’s Registration Statement on Form 8-A filed on June 9, 2014.
(10)
Filed previously as an exhibit to the Company’s Annual Report on Form 10-K for the year ended December 31, 2010.
(11)
Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed on March 2, 2011.
(12)
Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed on February 4, 2014.

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(13)
Filed previously as an exhibit to the Company’s Annual Report on Form 10-K for the year ended December 31, 2012 filed on March 18, 2013.
(14)
Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed on March 2, 2012.
(15)
Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed on June 13, 2012.
(16)
Filed previously as an exhibit to the Company’s registration statement on Form 8-A filed on June 8, 2012.
(17)
Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed on June 29, 2012.
(18)
Filed previously as an exhibit to the Company's Registration Statement on Form 8-A filed on September 28, 2012.
(19)
Filed previously as an exhibit to the Company's Current Report on Form 8-K filed on September 23, 2014.
(20)
Filed previously as an exhibit to the Company's Annual Report on Form 10-K filed for the year ended December 31, 2013 filed on March 3, 2014.
(21)
Filed previously as an exhibit to the Company's Current Report on Form 8-K filed on October 1, 2012.
(22)
Filed previously as an exhibit to the Company Current Report on Form 8-K filed on March 19, 2013.
(23)
Filed previously as an exhibit to the Company's Current Report on Form 8-K filed on April 8, 2013.
(24)
Filed previously as an exhibit to the Company's Current Report on Form 8-K filed on July 25, 2013.
(25)
Filed previously as an exhibit to the Company's Current Report on Form 8-K filed on October 21, 2013.
(26)
Filed previously as an exhibit to the Company's Current Report on Form 8-K filed on November 20, 2014.
(27)
Filed previously as an exhibit to the Company's Current Report on Form 8-K filed on January 13, 2015.
(28)
Filed previously as an exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2015.
(29)
Filed previously as an exhibit to the Company's Current Report on Form 8-K filed on September 1, 2015.
(30)
Filed previously as an exhibit to the Company's Current Report on Form 8-K filed on September 16, 2015.





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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
 
RESOURCE CAPITAL CORP.
 
 
 
(Registrant)
 
 
 
 
November 6, 2015
 
By:
/s/ David J. Bryant
 
 
 
David J. Bryant
 
 
 
Senior Vice President
 
 
 
Chief Financial Officer and Treasurer
 
 
 
 
November 6, 2015
 
By:
/s/ Eldron C. Blackwell
 
 
 
Eldron C. Blackwell
 
 
 
Vice President
 
 
 
Chief Accounting Officer



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