UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

Amendment No. 1 to

Form 10-K/A

(Mark One)

þ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934

For the fiscal year ended September 30, 2012

or

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGEACT OF 1934

For the transition period from _________ to __________

Commission file number: 0-4408

RESOURCE AMERICA, INC.

(Exact name of registrant as specified in its charter)

Delaware	72-0654145
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)

One Crescent Drive, Suite 203, Navy Yard Corporate Center, Philadelphia, PA  19112
(Address of principal executive offices) (Zip code)
(215) 546-5005
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(g) of the Act:
Common stock, par value $.01 per share	NASDAQ Global Select Market
Title of class	Name of exchange on which registered

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes o No þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(a) of the Act.  Yes o No þ

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 o

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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K/A. þ

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	o		Accelerated filer	þ
Non-accelerated filer	o	(Do not check if a smaller reporting company)	Smaller reporting company	o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No þ

The aggregate market value of the voting common equity held by non-affiliates of the registrant, based on the closing price of such stock on the last business day of the registrant’s most recently completed second fiscal quarter (March 31, 2012) was approximately $88,286,000.

The number of outstanding shares of the registrant’s common stock on December 3, 2012 was 19,978,423 shares.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s proxy statement filed with the Commission in connection with the 2013 Annual Meeting of Stockholders are incorporated by reference in Part III of this Form 10-K/A.

ANNUAL REPORT ON FORM 10-K/A

For the fiscal year ended September 30, 2012

EXPLANATORY NOTE

In this Form 10-K/A, we are amending and replacing Parts I and II to our previously filed Annual Report on Form 10-K for the fiscal year ended September 30, 2012 as filed on December 14, 2012, for the purpose of restating our consolidated balance sheets as of September 30, 2012 and 2011, and the related consolidated statements of operations and comprehensive loss, shareholders’ equity and cash flows for the fiscal years ended September 30, 2012 and 2011, including the applicable notes to consolidated financial statements, to reflect the consolidation of Resource Capital Corp. (“RSO”). We have also included in this report restated unaudited consolidated financial information for each of the four quarters of 2011. This report reflects the audited financial information of Resource America as of and for the fiscal years ended September 30, 2012 and 2011 as well as for the interim periods within the fiscal year ended September 30, 2011, which has been restated to include the consolidation of the audited financial information of RSO as of and for the corresponding calendar years ended December 31, 2012 and 2011, and the interim periods within the calendar year ended December 31, 2011. The quarters within the fiscal year ended September 30, 2012 are not included in this report and will instead be fully restated by their inclusion in the amended reports to be filed on December 31, 2012 quarterly report as a transitional Form 10-Q (“Form 10-QT”), Forms 10-Q/A for the quarters ended March 31 and June 30, 2013 as well as in the September 30, 2013 Form 10-Q.

     We do not plan to file an amendment to our Annual Report on Form 10-K for the fiscal year ended September 30, 2011 nor to our Quarterly Reports on Forms 10-Q for the quarterly periods ended December 31, 2011 and 2010, and March 31 and June 30, 2012 and 2011, respectively. Thus, you should not rely on any of the previously filed annual or quarterly reports relating to the foregoing periods since they are superseded by this report. In addition, we will be restating our Form 10-Qs for the quarters ended December 31, 2012, and March 31 and June 30, 2013. Furthermore, on September 30, 2013 we changed our fiscal year end from September 30^th to December 31^st, effective September 30, 2012, to conform our year end with that of RSO. Accordingly, we will file an amendment to our December 31, 2012 quarterly report as a transitional Form 10-Q (“Form 10-QT”) to reflect that change in our year end to December 31^st. Our next Annual Report on Form 10-K will be filed for the year ending December 31, 2013.

For more detailed information about the restatement, please see Note 2, “Restatement of Consolidated Financial Statements For the Fiscal Years Ended and as of September 30, 2012 and 2011” and Note 27, “Unaudited Quarterly Financial Data and Restatement of Interim Financial Statements” in the accompanying consolidated financial statements and “Restatement of Previously Issued Financial Results” in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of this Annual Report.

RESOURCE AMERICA, INC. AND SUBSIDIARIES

INDEX TO ANNUAL REPORT

ON FORM 10-K/A

		Page
PART I
Item 1:	Business	4
Item 1A:	Risk Factors	11
Item 2:	Properties	17
Item 3:	Legal Proceedings	17
PART II
Item 5:	Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	18
Item 6:	Selected Financial Data	20
Item 7:	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24
Item 7A:	Quantitative and Qualitative Disclosures About Market Risk	47
Item 8:	Financial Statements and Supplementary Data	48
Item 9:	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	191
Item 9A:	Controls and Procedures	191
PART III
Item 10:	Directors, Executive Officers and Corporate Governance	194
Item 11:	Executive Compensation	194
Item 12:	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	194
Item 13:	Certain Relationships and Related Transactions, and Director Independence	194
Item 14:	Principal Accountant Fees and Services	194
PART IV
Item 15:	Exhibits and Financial Statement Schedules	195
SIGNATURES		197

PART I

ITEM 1. BUSINESS.

This report contains certain forward-looking statements. Forward-looking statements relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts. In some cases, you can identify forward-looking statements by terms such as “anticipate,” “believe,” “could,” “estimate,” “expects,” “intend,” “may,” “plan,” “potential,” “project,” “should,” “will” and “would” or the negative of these terms or other comparable terminology. Such statements are subject to the risks and uncertainties more particularly described in Item 1A, under the caption “Risk Factors.” These risks and uncertainties could cause actual results and financial position to differ materially from those anticipated in such statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. We undertake no obligation to publicly revise or update these forward-looking statements to reflect events or circumstances after the date of this report, except as may be required under applicable law. We make references to the fiscal years ended September 30, 2012, 2011 and 2010 as fiscal 2012, fiscal 2011 and fiscal 2010, respectively.

General

We are a specialized asset management company that uses industry specific expertise to evaluate, originate, service and manage investment opportunities through our real estate, financial fund management and commercial finance subsidiaries as well as our joint ventures. As a specialized asset manager, we seek to develop investment funds for outside investors for which we provide asset management services, typically under long-term management arrangements either through a contract with, or as the manager or general partner of, our sponsored investment funds. We typically maintain an investment in the funds we sponsor. As of September 30, 2012, we managed $14.9 billion of assets.

We limit our fund development and management services to asset classes where we own existing operating companies or have specific expertise. We believe this strategy enhances the return on investment we can achieve for our funds. In our real estate operations, we concentrate on the ownership, operation and management of multifamily and commercial real estate and real estate mortgage loans including whole mortgage loans, first priority interests in commercial mortgage loans, known as A notes, subordinated interests in first mortgage loans, known as B notes, mezzanine loans, investments in discounted and distressed real estate loans and investments in “value-added” properties (properties which, although not distressed, need substantial improvements to reach their full investment potential). In our financial fund management operations, we concentrate on bank loans, trust preferred securities of banks, bank holding companies, insurance companies and other financial companies, and asset backed securities, or ABS.

In our real estate segment, we have focused our efforts primarily on acquiring and managing a diversified portfolio of commercial real estate and real estate related debt that has been significantly discounted due to the effects of current economic conditions and high levels of leverage. We expect to continue to expand this business by raising investor funds through our retail broker channel for investment programs, principally through Resource Real Estate Opportunity REIT, Inc. which we refer to as RRE Opportunity REIT.

In our financial fund management segment, our recent focus has primarily been the sponsorship and management of issuers of collateralized loan and debt obligations, or CDOs and CLOs. In October 2011, on behalf of Resource Capital Corp., or RSO, and third-party investors, we closed Apidos CLO VIII (par value of $350.0 million). Apidos CLO VIII's non-call period ended on October 17, 2013, at which time all assets were liquidated and all outstanding notes were paid off.

In April 2012, we completed the sale of 100% of our equity interests in Apidos Capital Management, LLC, or Apidos, our former CLO management subsidiary, to CVC Capital Partners SICAV-FIS, S.A., a private equity firm, or CVC. In connection with the transaction, we received $25.0 million in cash before transaction costs and 33% partnership interests in a joint venture, CVC Credit Partners, L.P., or CVC Credit Partners, that includes the Apidos portfolios as well as the portfolios contributed by CVC. Additionally, we retained a preferred equity interest in Apidos, which entitles us to receive 75% of the incentive management fees from the legacy Apidos portfolios that were previously managed by us and are now managed by CVC Credit Partners. We recorded a $54.5 million net gain on the sale.

In July 2012, through our CVC Credit Partners joint venture, we closed Apidos CLO IX (par value of $409.8 million) and in November 2012, Apidos CLO X (par value of $450.0 million).

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Our commercial finance operations underwent significant restructuring and recapitalization during fiscal 2011 and the first quarter of fiscal 2012. These transactions provided substantial amounts of equity and debt financing to the lease origination and servicing platform, which is now held by LEAF Commercial Capital, Inc., or LEAF, a joint venture between us, RSO and Guggenheim Securities LLC. Our subsidiary, LEAF Financial Corporation, or LEAF Financial, retained the leasing partnership management operations. As a result of the additional capital contribution in November 2011 by Eos Partners, L.P., a private investment firm, and its affiliates, our equity interest in LEAF was reduced to 15.7% on a fully diluted basis (which was further adjusted to 14.9%), and we have deconsolidated LEAF from our financial statements as of November 16, 2011. We recorded an $8.7 million gain on the deconsolidation of LEAF, inclusive of a $1.7 million remeasurement gain to reflect our investment in LEAF at fair value during our first fiscal quarter ended December 31, 2011. Due to the deconsolidation of LEAF, we have decreased our total assets at September 30, 2012 by $227.9 million and our outstanding borrowings by $184.7 million from the corresponding balances reported at September 30, 2011. We currently account for our interests in LEAF as an equity method investment. From November 16, 2011 to March 31, 2012, the equity losses we recorded from LEAF reduced our investment to zero as of March 31, 2012. In addition, we have recorded provisions for credit losses of $16.8 million during the fiscal year ended September 30, 2012 on our receivables due from three of our commercial finance investment funds based on reductions in their projected cash flows.

Assets Under Management

As of September 30, 2012 and 2011, we managed assets in the following classes for the accounts of institutional and individual investors, RSO, and for our own account (in millions):

	September 30, 2012								September 30, 2011
	Institutional and Individual Investors		RSO		Company		Total		Total
Bank loans (1)	$	4,856	$	2,799	$	—	$	7,655	$	5,518
Trust preferred securities (1)	3,642		—		—		3,642		3,890
Asset-backed securities (1)	1,263		—		—		1,263		1,576
Mortgage and other real    estate-related loans (2)	17		917		3		937		861
Real properties (2)	688		92		18		798		756
Commercial finance assets (3)	520		—		—		520		585
Private equity and other assets (1)	90		15		—		105		118
	$	11,076	$	3,823	$	21	$	14,920	$	13,304

(1) We value these assets at their amortized cost.

(2) We value our managed real estate assets as the sum of:  (I) the amortized cost of our commercial real estate loans; and (ii) the book value of each of the following: (a) real estate and other assets held by our real estate investment entities, (b) our outstanding legacy loan portfolio, and (c) our interests in real estate.

(3) We value our commercial finance assets as the sum of the book value of the financed equipment and leases and loans.

Our assets under management are primarily managed through the investment entities we sponsor.  The following table sets forth the number of entities we manage by operating segment, including tenant in common, or TIC, property interests:

	CDOs	Limited Partnerships	TIC Programs	Other Investment Funds
As of September 30, 2012(1)
Financial fund management	43	13	—	3
Real estate	2	9	6	5
Commercial finance	—	4	—	2
	45	26	6	10
As of September 30, 2011(1)
Financial fund management	37	13	—	1
Real estate	2	8	6	5
Commercial finance	—	4	—	2
	39	25	6	8

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(1) All of our operating segments manage assets on behalf of RSO.

Real Estate

Through our real estate segment, we focus on four different areas:

• the acquisition, ownership and management of portfolios of discounted real estate and real estate related debt, which we have acquired through two sponsored real estate investment entities as well as through joint ventures with institutional investors;

• the sponsorship and management of real estate investment entities that principally invest in multifamily housing;

• the management, principally for RSO, of general investments in commercial real estate debt, including first mortgage debt, whole loans, mortgage participations, B notes, mezzanine debt and related commercial real estate securities; and

• to a significantly lesser extent, the management and resolution of a portfolio of real estate loans and property interests that we acquired at various times between 1991 and 1999, which we collectively refer to as our legacy portfolio.

Discounted Real Estate Operations. RRE Opportunity REIT is acquiring a diversified portfolio of U.S. commercial real estate and real estate related debt that has been significantly discounted due to the effects of economic events and high levels of leverage, including properties that may benefit from extensive renovations intended to increase their long-term values. Through September 30, 2012, RRE Opportunity REIT raised an aggregate of $168.1 million through its public and private offerings, the proceeds from which have been used to acquire three properties and ten real estate loans (of which six were foreclosed and a discounted settlement payment was received on another loan).

In May 2008, we entered into a joint venture, structured as a credit facility, with an institutional investor, that makes available up to $500.0 million to finance the acquisition of distressed properties and mortgage loans and that has the objective of repositioning both the directly owned properties and the properties underlying the mortgage loans to enhance their value.  In December 2009, we sold our interest in the joint venture to RSO at its book value, while retaining management of the assets and continue to receive fees in connection with the acquisition, investment management and disposition of new assets acquired. Through September 30, 2012, the joint venture had acquired 21 assets for an aggregate of $159.4 million, of which 12 have been sold.

We record quarterly asset management fees from our joint ventures with an institutional partner which range from 0.83% to 1% of the gross funds invested in distressed real estate loans and assets. We recognize these fees monthly.

Real Estate Investment Entities. Since 2003, we have sponsored and manage 19 real estate investment entities (two of which have since been merged into a single entity and excluding the two real estate CDOs we sponsored and manage for RSO) having raised a total of $319.3 million in investor funds. Through September 30, 2012, these entities have acquired interests in 43 multifamily apartment complexes comprising 11,042 units at a combined acquisition cost of $592.5 million, including interests owned by third-parties and excluding properties sold.

We receive acquisition and debt placement fees from the investment entities in their acquisition stage. These fees, in the aggregate, have ranged from 1% to 2% of the net purchase price of properties acquired and 0.5% to 1.75% of the debt financing in the case of debt placement fees. In addition, we receive debt origination fees which range from 0.5% to 5.0% on the purchase price of real estate debt investments acquired on behalf of real estate investment entities. In their operational stage, we receive property management fees of 4.5% to 5% of gross revenues.

Additionally, we record an annual investment management fee from our investment partnerships equal to 1% of the gross offering proceeds of each partnership for our services. We record an annual asset management fee from our TIC programs equal to 1% to 2% of the gross revenues from the property in connection with our performance of our asset management responsibilities. We record an annual asset management fee from one limited liability company equal to 1.5% of the gross revenues of the underlying properties. These investment management fees and asset management fees are recognized monthly when earned and are discounted to the extent that these fees are deferred.

Resource Capital Corp. As of September 30, 2012, our real estate operations managed approximately $1.0 billion of commercial real estate assets, including $887.6 million held in CDOs we sponsored in which RSO holds the equity interests and $92.0 million of property interests on behalf of RSO. We discuss RSO in more detail in “− Resource Capital Corp.,” below.

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Resource Residential. Our internal property management division, Resource Real Estate Management, Inc., or Resource Residential, has provided us with a source of stable revenues for our real estate operations. Furthermore, we believe that having direct management control over the properties in our investment programs has not only enabled us to enhance their profitability, but also provides us with a competitive edge in marketing our funds by distinguishing us from other sponsors of real estate investment funds. As of September 30, 2012, our property management division manages, on behalf of our funds, 42 multifamily properties in 10 states, 18 distressed/value-added properties in 10 states and one commercial property. In total, Resource Residential manages 61 properties in 16 states.

Legacy Portfolio of Loan and Property Interests. Between fiscal 1991 and 1999, our real estate operations focused on the purchase of commercial real estate loans at a discount to their outstanding loan balances and the appraised value of their underlying properties. Since 1999, management has focused on resolving and disposing of these assets. At September 30, 2012, the remaining legacy portfolio consisted of one loan, with a book value of $727,000, and five property interests, with an aggregate book value of $16.9 million. During fiscal 2012, we impaired the legacy loan by $89,000 and in November 2012, the property underlying the loan was sold at its approximate book value.

Financial Fund Management

General. We conduct our financial fund management operations primarily through six separate operating entities:

• CVC Credit Partners, a joint venture between us and an unrelated third-party, finances, structures and manages investments in bank loans, high yield bonds and equity investments through CLO issuers, managed accounts and a credit opportunities fund. Prior to April 17, 2012, we conducted these operations through our Apidos business;

• Trapeza Capital Management, LLC, or TCM, a joint venture between us and an unrelated third-party, manages investments in trust preferred securities and senior debt securities of banks, bank holding companies, insurance companies and other financial companies through CDO issuers and related partnerships. TCM, together with the Trapeza CDO issuers and Trapeza partnerships, are collectively referred to as Trapeza;

• Resource Financial Institutions Group, Inc., or RFIG, serves as the general partner for seven company-sponsored affiliated partnerships which invest in financial institutions;

• Ischus Capital Management, LLC, or Ischus, finances, structures and manages investments in ABS including residential mortgage-backed securities, or RMBS, and commercial mortgage-backed securities, or CMBS;

• Resource Capital Markets, Inc., or Resource Capital Markets, through our registered broker-dealer subsidiary, Resource Securities, Inc., or Resource Securities (formerly Chadwick Securities, Inc.), acts as an agent in the primary and secondary markets for structured finance securities and manages accounts for institutional investors; and

• Resource Capital Manager, Inc., or RCM, an indirect wholly-owned subsidiary, provides investment management and administrative services to RSO under a management agreement between us, RCM and RSO.

We derive revenues from our existing financial fund management operations through management fees. We are also entitled to receive distributions on amounts we have invested directly in CDOs or in limited partnerships we formed that purchased equity in the CDO issuers we sponsored. Our CDO management fees generally consist of base and subordinated management fees. For the Trapeza CDO issuers we sponsored and manage, we share base management fees with our co-sponsors.     

We describe the management fees we receive from RSO in “− Resource Capital Corp” below. For the Apidos CLO issuers we sponsored and now manage through our joint venture, CVC Credit Partners, fees are paid to the joint venture in which we are a 33% partner. Base management fees generally are a fixed percentage of the aggregate principal balance of eligible collateral held by the CDO. The base management fees range from 0.01% to 0.25% of a managed CDO's assets. Subordinated management fees are also a percentage of the aggregate principal balance of eligible collateral held by the CDO, and range from 0.04% to 0.40%, but typically are subordinated to debt service payments on the CDOs. The management fees are payable monthly, quarterly or semi-annually, as long as we continue to manage portfolio assets on behalf of the CDO issuer. Prior to April 2012, we earned these fees directly and subsequently, we have an equity interest in these fees through our joint venture.

Additionally, we record fees for managing the assets held by the partnerships we have sponsored and for managing their general operations. These fees, which vary by limited partnership, range between 0.75% and 2.00% of the partnership capital balance.

As of September 30, 2012, our financial fund management operations and our joint venture partner have sponsored and/or manage 43 CDO issuers (eight of which we manage on behalf of RSO) holding approximately $12.6 billion in assets as set forth in the following table:

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Sponsor/Manager	Asset Class	Number of CDO Issuers	Assets Under Management (1)
			(in millions)
Trapeza (2)(3)	Trust preferred securities	13	$	3,642
Apidos	Bank loans	21	7,650
Ischus (2)	RMBS/CMBS/ABS	9	1,263
		43	$	12,555

(1) Calculated as set forth in “Assets Under Management,” above.

(2) We also own a 50% interest in the general partners of the limited partnerships that own a portion of the equity interests in each of five Trapeza CDO issuers.

(3) Through Trapeza, we own a 50% interest in an entity that manages 11 of the Trapeza CDO issuers and a 33.33% interest in another entity that manages two of the Trapeza CDO issuers.

Resource Capital Corp. As of September 30, 2012, our financial fund management operations manage $2.8 billion of bank loans on behalf of RSO that are in Apidos CLOs (of which RSO holds the equity interests in four of the CLOs). We discuss RSO in more detail in “ − Resource Capital Corp.,” below.

Company-Sponsored Partnerships. We sponsored, structured and currently manage seven investment entities for individual and institutional investors, which invest in banks and other financial institutions. At September 30, 2012, these partnerships held $62.0 million of assets.

Resource Capital Corp.

RSO, a publicly-traded REIT that we sponsored and manage, invests in a diversified portfolio of whole loans, B notes, CMBS and other real estate-related loans and commercial finance assets. At September 30, 2012, we owned 2.6 million shares of RSO common stock, or approximately 2.7% of RSO's outstanding common stock, and held options to acquire 2,166 shares (at an exercise price of $15.00 per share, which expire in March 2015).

We manage RSO through RCM. At September 30, 2012, we managed a total of $3.8 billion of assets on behalf of RSO. Under our management agreement with RSO, RCM receives a base management fee, incentive compensation, property management fees and a reimbursement for out-of-pocket expenses. The base management fee is 1/12^th of 1.50% of RSO's equity per month. The management agreement defines “equity” as essentially shareholders' equity, subject to adjustment for non-cash equity-based compensation expense and non-recurring charges to which the parties agree. The incentive compensation is 25% of (I) the amount by which RSO's adjusted operating earnings (as defined in the agreement) of RSO (before incentive compensation but after the base management fee) for such quarter per common share (based on the weighted average number of common shares outstanding for such quarter) exceeds (ii) an amount equal to (a) the weighted average of the price per share of RSO's common shares in the initial offering by RSO and the prices per share of the common shares in any subsequent offerings of RSO, in each case at the time of issuance thereof, multiplied by (b) the greater of (1) 2.00% and (2) 0.50% plus one-fourth of the ten year treasury rate (as defined in the agreement) for such quarter, multiplied by the weighted average number of common shares outstanding during such quarter; provided, that the foregoing calculation of incentive compensation will be adjusted (I) to exclude events pursuant to changes in accounting principles generally accepted in the United States, or U.S. GAAP, or the application of U.S. GAAP, as well as non-recurring or unusual transactions or events, after discussion between us, RSO and the approval of a majority of RSO's directors in the case of non-recurring or unusual transactions or events and (ii) by deducting any fees paid directly by RSO to our employees, agents and/or affiliates with respect to profits earned by a taxable REIT subsidiary of RSO (calculated as if such fees were payable quarterly) not previously used to offset incentive compensation. RCM receives at least 25% of its incentive compensation in additional shares of RSO common stock and has the option to receive more of its incentive compensation in stock under the management agreement.

Beginning in February 2011, we entered into a services agreement with RSO to provide subadvisory collateral management and administrative services for five CLOs holding approximately $1.7 billion in bank loans whose management contracts RSO had acquired. In connection with the services provided, RSO will pay Apidos-CVC 10% of all base and additional collateral management fees and 50% of all incentive collateral management fees it collects.

Under a fee agreement, in connection with the April 2012 sale of Apidos, which we thereafter refer to as Apidos-CVC, we must pay a portion of the base management fee we receive from RSO to Apidos-CVC based on the equity owned by RSO in four Apidos deals multiplied by 1.5% and approximately 17% of any incentive compensation we receive from RSO to Apidos-CVC, excluding non-recurring items unrelated to Apidos-CVC.

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Prior to the formation of LEAF, we also received an acquisition fee of 1% of the carrying value of the commercial finance assets we sold to RSO.

In March 2012, we entered into an amendment to our management agreement with RSO in order to provide RSO with a sufficient number of accounting professionals dedicated to RSO's operations. RSO's Board of Directors reviews and approves the number of accounting professionals and amounts charged for them by us. In conjunction with the preferred stock offering by RSO, the management agreement was further amended on June 14, 2012 to include the RSO preferred shares in addition to its common shares for purposes of calculating our management fees.

Our financial statements have been prepared to consolidate the financial statements of RSO. The impact of the consolidation is significant to the presentation of our financial statements but not to our financial condition or results of operations. See Note 3, “Summary of Significant Accounting Policies,” and Note 26, “Variable Interest Entities” of the notes to our restated consolidated financial statements in Item 8 of this report.

Commercial Finance

General. In January 2011, we formed LEAF to conduct our equipment lease origination and servicing operations and to obtain outside equity and debt financing sources. LEAF Financial retained the management of our four equipment leasing partnerships, which are sub-serviced by LEAF. As a result of the equity and debt financing obtained in connection with LEAF's formation and the additional equity and debt financing obtained in November 2011 (after the end of our 2011 fiscal year), we have determined that we no longer control LEAF and, effective with that investment, have deconsolidated it for financial reporting purposes. We subsequently have accounted for our investment in LEAF under the equity method of accounting. See “Business- General”. We retained the management of the four leasing partnerships and a 14.9% (fully diluted) equity interest in LEAF.

As of September 30, 2012, we managed a $520.0 million commercial finance portfolio, of which $178.0 million was on behalf of the four investment entities we sponsored and whose management we have retained and sub-serviced to LEAF.

Credit Facilities and Notes

As of September 30, 2012, we had two corporate credit facilities, one with TD Bank and the other with Republic Bank.

TD Bank. As of September 30, 2012, we had no outstanding borrowings and availability of $7.0 million under the line of credit with TD Bank. The current interest rate on the line and term note is, based on our election, at either (i) the prime rate of interest plus 2.25% (with a floor of 6%) or (ii) London Interbank Offered Rate, or LIBOR, plus 3% (with a floor of 6%). In addition, we have a $503,000 letter of credit outstanding, which reduces our availability on the line of credit, and for which we are charged a 5.25% fee. On November 16, 2012, we extended the revolving credit facility maturity to December 31, 2014 and eliminated the 6% interest rate floor.

Borrowings on the credit facility and term note are secured by a first priority security interest in specified assets and guarantees by certain subsidiaries, including (i) the present and future fees and investment income earned in connection with the management of, and investments in, sponsored CDO issuers, (ii) a pledge of 18,972 shares of The Bancorp, Inc., or TBBK (NASDAQ: TBBK), common stock, and (iii) the pledge of 1,935,337 shares of RSO common stock.  Availability under the facility is limited to the lesser of (a) 75% of the net present value of future management fees to be earned or (b) the maximum revolving credit facility amount. Weighted average borrowings for fiscal 2012 and 2011 were $3.7 million and $10.1 million, respectively, at a weighted average borrowing rate of 6.0% and 6.6% and an effective interest rate (inclusive of amortization of deferred issuance costs) of 12.0% and 10.5%, respectively.

Republic First Bank (or Republic Bank). In February 2011, we entered into a $3.5 million revolving credit facility with Republic Bank. The facility bears interest at the prime rate of interest plus 1% (floor of 4.5%). The loan is secured by a pledge of 700,000 shares of RSO stock and a first priority security interest in an office building located in Philadelphia, Pennsylvania. Availability under this facility is limited to the lesser of (a) the sum of (i) 25% of the appraised value of the real estate, based upon the most recent appraisal delivered to the bank and (ii) 100% of the cash and 75% of the market value of the pledged RSO shares held in the pledged account; or (b) 100% of the cash and 100% of the market value of the pledged RSO shares held in the pledged account. In January 2012, we amended this facility to extend the maturity date and to add an unused annual facility fee equal to 0.25%. On October 26, 2012, we further amended the facility to extend the maturity date to December 28, 2014. There were no borrowings under this facility during fiscal 2012 or 2011. There was $3.5 million of availability as of September 30, 2012.

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Senior Notes. In September and October 2009, we completed a private offering to certain senior executives and shareholders of $18.8 million of 12% senior notes due in September and October 2012, or the Senior Notes, with 5-year detachable warrants to purchase 3,690,195 shares (with an exercise price of $5.10 per share). The Senior Notes require quarterly payments of interest in arrears beginning December 31, 2009. The Senior Notes are unsecured, senior obligations and are junior to our existing and future secured indebtedness. We refinanced the Senior Notes in November 2011 through a partial redemption and modification. We redeemed $8.8 million of the existing notes for cash and modified $10.0 million of notes to a 9% interest rate and extended the maturity to October 2013. We further modified the Senior Notes in December 2012 to extend the maturity to March 31, 2015.

Due to the November 2011 LEAF Transaction and resulting deconsolidation of LEAF, the following commercial finance credit facilities that were outstanding and reflected in our consolidated balance sheet as of September 30, 2011 are no longer included in our fiscal 2012 financial statements:

• a $110.0 million secured revolving facility between Guggenheim and a wholly-owned subsidiary of LEAF; and

• $75.4 million of equipment contract-backed notes issued by a subsidiary of LEAF that provides financing for leases and loans.

Asset Sourcing

Real Estate. We maintain relationships with asset owners, institutions, existing partners and borrowers, who often source investment opportunities directly to us. We maintain offices in Philadelphia, New York, Denver and El Segundo, California that provide us with a national platform of acquisition and loan origination specialists that source deals from key intermediaries such as commercial real estate brokers, mortgage brokers and specialists in selling discounted and foreclosed assets. We systematically work to exchange market data and asset knowledge across the platform to provide instant market feedback on potential investments that is based on empirical data as well as on data generated by our $1.7 billion portfolio of assets under management.

Commercial Finance. All commercial finance sourcing has been the responsibility of LEAF. Although LEAF is no longer a consolidated subsidiary as of November 2011, LEAF Financial continues to manage our four leasing partnerships and utilize LEAF as sub-servicer.

Subsequent Events

RAI - Real estate. In January 2013, we sold our 10% interest in a real estate joint venture to our partner for $3.0 million. We will continue to manage the asset and will receive property management fees in the future.

RSO related subsequent events. On January 2, 2013, RSO sold two CRE whole loans which are classified as loans held for sale at December 31, 2012 for $34.0 million.

On February 15, 2013, Olympic CLO I Ltd., one of the RCAM managed CLOs, with the consent of the Majority Preferred Shareholders, elected to redeem the outstanding notes in whole.

In April 2013, RSO entered into another stock purchase agreement with LEAF to purchase shares of newly issued Series E Preferred Stock for $2.2 million. The Series E Preferred Stock has priority over the other classes of preferred stock.

On April 2, 2013, RCC Real Estate, a subsidiary of RSO, entered into an amendment of its existing commercial real estate credit facility with Wells Fargo Bank, N.A. The amendment increases the size of the facility to $250.0 million and extends the current term of the facility to February of 2015 and provides two additional one year extension options at RSO’s discretion. RCC Real Estate paid an additional structuring fee of $101,000 and an extension fee of $938,000 in connection with the amendment and will amortize the additional fees over the term of the extension.

On July 19, 2013, an indirect wholly-owned subsidiary of RSO entered into a $200.0 million Master Repurchase Agreement with Deutsche Bank AG to be used to finance RSO’s core commercial real estate lending business. The financing facility matures initially on July 19, 2014, with the right to extend an additional two years to July 16, 2016.

On October 31, 2013, RSO acquired, through RCC Residential, Inc., its newly-formed taxable REIT subsidiary, a residential mortgage origination company, Primary Capital Advisors LC, or PCA, an Atlanta based firm, for $8.4 million; consisting of $7.6 million in cash and $800,000 in shares of RSO common stock.  Of the $7.6 million cash consideration, $1.8 million was set aside in an escrow account as a contingency for potential purchase price adjustments.

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Employees

	Total	Real Estate	Financial Fund Management (1)	Corporate/ Other	Commercial Finance (2)
September 30, 2012
Investment professionals	56	41	12	3	—
Other	63	18	12	33	—
	119	59	24	36	—
Property management	483	483	—	—	—
Total	602	542	24	36	—
September 30, 2011
Investment professionals	106	38	27	2	39
Other	221	18	12	39	152
	327	56	39	41	191
Property management	410	410	—	—	—
Total	737	466	39	41	191

(1) Decrease due to our April 2012 deconsolidation of Apidos.

(2) As a result of the November 2011 LEAF Transaction and deconsolidation of LEAF, we no longer have any commercial finance employees.

Operating Segments and Geographic Information

We provide operating segment and geographic information about foreign operations in Note 26 of the notes to our restated consolidated financial statements included in Item 8, “Financial Statements and Supplementary Data.” We provide additional narrative discussion of our operating segments in Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations.”

Available Information

We file annual, quarterly and current reports, proxy statements and other information with the United States Securities and Exchange Commission, or SEC. Our Internet address is http://www.resourceamerica.com. We make our SEC filings available free of charge on or through our Internet website as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. We are not incorporating by reference in this report any material from our website.

ITEM 1A.    RISK FACTORS.

You should carefully consider the following risks together with all of the other information contained in this report in evaluating our company. If any of these risks develop into actual events, our business, financial condition and results of operations could be materially adversely affected and the trading price of our common stock could decline.

Risks Related to Our Business Generally

Our business depends upon our ability to sponsor, and raise debt and equity capital for, our investment funds.

Our business as a specialized asset manager depends upon our ability to sponsor investment funds, raise sufficient equity capital and debt financing for these funds and to generate management fees by managing these funds and the assets they hold. If we are unable to raise capital or obtain financing through these funds, we will not be able to increase our assets under management and, accordingly, increase our revenues from management fees. Moreover, because many of our investment funds have limited terms, an inability to sponsor new investment funds could result in reduced assets under management and, accordingly, reduce our management fee revenues over time. Our ability to raise capital and obtain financing through these funds depends upon numerous factors, many of which are beyond our control, including:

• existing capital markets conditions which may affect: interest rates, the availability of acquisition financing as well as the amount and cost of such financing, and the returns we are able to achieve on our investments; asset valuation and pricing; and our ability to refinance or exit and realize value from investments made for the funds;

• market acceptance of the types of funds we sponsor and market perceptions about the types of assets which we seek to acquire for our funds;

• the willingness or ability of investors to invest in long-term, relatively illiquid investments of the type we sponsor;

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• the performance of our existing funds relative to market performance generally and to the performance of similar types of funds;

• the availability of qualified personnel to manage our funds; and

• the availability of suitable investments on acceptable terms of the type we seek to acquire for our funds.

Under current market conditions, our ability to raise equity capital from both retail and institutional investors may not be at the same levels that we have achieved historically. While we have sought to counteract this decline by sponsorship of RRE Opportunity REIT and we have raised a total of $168.1 million as of September 30, 2012, it is unlikely that RRE Opportunity REIT will sell the maximum number of interests being offered.

Declines in the market values of our investments may reduce our earnings and the availability of credit.

We classify a material portion of our assets for accounting purposes as “available-for-sale.” As a result, changes in the market values of those assets are directly charged or credited to stockholders' equity. A decline in these values will reduce the book value of our assets. Moreover, if the decline in value of an available-for-sale asset is other-than-temporary, such decline will reduce earnings. As a result of market conditions, the market value of many of our assets has declined and we have classified material amounts of these declines as other-than-temporary. We cannot assure you that there will not be further declines in the value of our assets, or that the declines will not be material, or that they will not be other-than-temporary.

A decline in the market value of our assets may also adversely affect us in instances where we have borrowed money based on the market value of those assets or seek new borrowings. If the market value of assets securing an existing loan declines, the lender may reduce availability (if the loan is a line of credit), require us to post additional collateral or require us to pay down the loan so that it meets specified loan to collateral value ratios. If we were unable to post the additional collateral, we could have to sell the assets under adverse market conditions which could result in losses and which could result in us failing our debt covenants. Moreover, a decline in asset values could limit our ability to obtain financing in the amounts we seek or require us to provide more collateral to secure proposed financing.

Market changes, including changes in interest rates, may reduce the value of our assets, our returns on these assets and our ability to generate and increase our management fee revenues.

Market changes, including changes in interest rates, will affect the market value of assets we hold for our own account and our returns from such assets. In general, as interest rates rise, the value of fixed-rate investments will decrease, while as interest rates fall, the return on variable rate assets will fall. In addition, changes in interest rates may affect the value and return on assets we manage for our investment funds, thereby affecting both our management fees from those funds (and, in particular, any performance-based or incentive fees; see "In some of our investment funds, a portion of our management fees may depend upon the performance of the fund and, as a result, our management fee income may be volatile") as well as our ability to sponsor additional investment funds, which, in turn, may affect our ability to generate and increase our management fee revenues.

Increases in interest rates will increase our operating costs.

As of September 30, 2012, we had two corporate credit facilities that were subject to variable interest rates. We may seek to obtain other credit facilities depending upon capital markets conditions. Any facilities that we may be able to obtain may also be at variable rates. As a result, increases in interest rates on such credit facilities, to the extent they are with recourse to us and are not matched by increased interest rates or other income from the assets whose acquisition was financed by these facilities, or are not subject to effective hedging arrangements, will increase our interest costs, which would reduce our net income or cause us to sustain losses. For a discussion of the effects of interest rate changes on our interest expense relating to our corporate credit facilities, see Part II, Item 7A, "Quantitative and Qualitative Disclosures about Market Risk" in this filing.

Changes in interest rates may impair the operating results of our investment funds and thereby impair our operating results.

The investments made by many of our funds are interest rate sensitive. As a result, changes in interest rates could reduce the value of the assets held by those funds and the returns to investors, thereby impairing our ability to raise capital (see “- Our business depends upon our ability to sponsor, and raise debt and equity capital for, our investment funds,” above), reducing the management and other fees from those funds and reducing our returns on, and the value of, amounts we have invested in those funds.

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If we cannot generate sufficient cash to fund our participations in our investment funds, our ability to maintain and increase our revenues may be impaired.

We typically participate in our investment funds along with our investors, and believe that our participation enhances our ability to raise capital from investors. We typically fund our participations through cash derived from operations or from financing. If our cash from operations is insufficient to fund our participation in future investment funds we sponsor, we may seek to obtain funding from capital markets which may be unavailable to us, or cause us to incur significant costs, which would impede our ability to raise funds from investors and, thus, our ability to maintain and increase the revenues we receive from fund management.

Termination of management arrangements with one or more of our investment funds could harm our business.

We provide management services to our investment funds through management agreements, through our position as the sole or managing general partner of partnership funds, through our position as the operating manager of other fund entities, or combinations thereof. Our arrangements are long-term, and frequently have no specified termination dates. However, our management arrangements with, or our position as general partner or operating manager of, an investment fund typically may be terminated by action taken by the investors. Upon any such termination, our management fees, after payment of any termination payments required, would cease, thereby reducing our expected future revenues.

We may have difficulty managing our asset portfolios under current market conditions.

Current market conditions have increased the complexity of managing the assets held by us and our investment funds. As a result, we depend on the ability of our officers and key employees to continue to implement and improve our operational, financial and management controls, reporting systems and procedures to deal effectively with the complexity of the conditions under which we operate. We may not be able to implement improvements to our management information and control systems in an efficient or timely manner and may discover deficiencies in existing systems and controls. Consequently, we may experience strains on our administrative and operations infrastructure, increasing our costs or reducing or eliminating our profitability.

Our allowance for credit losses may not be sufficient to cover future losses.

At September 30, 2012, our allowance for possible credit losses was $27.6 million on receivables from managed entities, primarily representing 46.2% of the book value of the receivables from our commercial finance and real estate managed funds. We cannot assure you that these allowances will prove to be sufficient to cover future losses, or that any future provisions for credit losses that we may record will not be materially greater than those we have recorded to date. Losses that exceed our allowance for credit losses, or cause an increase in our provision for credit losses, could materially reduce our earnings.

Many of our assets are illiquid, and we may not be able to divest them in response to changing economic, financial and investment conditions. In addition, significant portions of our assets are subject to transfer constraints.

Many of our assets do not have ready markets, or there are restrictions on our ability to divest of our investment. Moreover, we believe that whatever markets currently exist for many of these assets, particularly real estate and CDO interests, they are more limited than they previously had been due to recessionary conditions from 2007 to 2009 and low growth conditions thereafter. As a result, many of our portfolio assets are relatively illiquid investments. We may be unable to vary our portfolio in response to changing economic, financial and investment conditions or to sell our investments on acceptable terms should we desire or need to do so.

We are subject to substantial competition in all aspects of our business.

Our ability to sponsor investment funds depends upon our access to various distribution systems of national, regional and local securities firms, and our ability to locate and acquire appropriate assets for our investment funds. We are subject to substantial competition in each area, and in some cases, competition has caused price increases, which has reduced the discount at which many properties sell, making them less attractive from an investment standpoint. In the distribution area, our investment funds compete with those sponsored by other asset managers, which are being distributed through the same networks, as well as investments sponsored by the securities firms themselves; none of the distribution systems which we access has any obligation to sell any of the interests in our investment funds. While we have been successful in maintaining access to these distribution systems, we cannot assure you that we will continue to do so. If access to one or more of our distribution channels is limited or terminated, the number of funds we sponsor and assets we manage could be reduced, thereby impeding and possibly impairing our revenues and revenue growth.

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In acquiring appropriate assets for our investment funds, we compete with numerous public and private investment entities, commercial banks, investment banks and other financial institutions, as well as industry participants, in each of our separate asset management areas. Many of our competitors are substantially larger and have considerably greater financial, technical and marketing resources than we do. Competition for desirable investments may result in higher costs and lower investment returns, and may delay our sponsorship of investment funds.

There are few economic barriers to entry in the asset management business.

Our investment funds compete against an ever-increasing number of investment and asset management products and services sponsored by investment banks, banks, insurance companies, financial services companies and others. There are few economic barriers to entry into the investment or asset management industries and, as a result, we expect that competition for access to distribution channels and appropriate assets to acquire will increase.

Our ability to realize our deferred tax asset may be reduced, which may adversely impact results of operations.

Realization of a deferred tax asset requires us to exercise significant judgment and is inherently uncertain because it requires the prediction of future occurrences. We may reduce our deferred tax asset in the future if estimates of projected income or our tax planning strategies do not support the amount of the deferred tax asset or due to unanticipated changes in future tax rates. If we determine that a valuation allowance of our deferred tax asset is necessary, we may incur a charge to earnings.

The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) may be detrimental to our business.

We expect that the Dodd-Frank Act, which as of September 30, 2012 is still in the process of being implemented, will have a significant impact on the financial services industry, and may particularly impact us with respect to increased compliance costs, hedging activities, our broker-dealer operations and, possibly, our ability to obtain financing to increase our assets under management or revenues. Because much of the Dodd-Frank Act creates a framework through which regulatory reform will be promulgated, rather than providing regulatory reform itself, we cannot predict the magnitude of the effect that the Dodd-Frank Act will ultimately have on us.

Failure to maintain adequate infrastructure could impede our productivity and growth.

Our infrastructure, including our technological capacity and office space, is important to our ability to conduct our operations. Failure to maintain an adequate infrastructure commensurate with the size and scope of our business could impede our productivity and growth, which could cause our earnings or stock price to decline.

Furthermore, we are highly dependent on various software applications, technologies and other systems for our business to function properly and to safeguard confidential information; any significant limitation, failure or security breach of these systems could constrain our operations. We utilize software and related technologies throughout our business to, among other things, obtain securities pricing information, process client transactions, and provide reports and other customer services to the clients of the funds we manage. Although we take protective measures, including measures to effectively secure information through system security technology and established and tested business continuity plans, we may experience system delays and interruptions as a result of natural disasters, power failures, acts of war and third-party failures. We cannot predict with certainty all of the adverse effects that could result from our failure, or the failure of a third-party, to efficiently address and resolve these delays and interruptions. These adverse effects could include the inability to perform critical business functions or failure to comply with financial reporting and other regulatory requirements, which could lead to loss of client confidence, harm to our reputation, exposure to disciplinary action and liability to our clients. Accordingly, potential system failures and the cost necessary to correct those failures could have a material adverse effect on our results of operations and business prospects.

In addition, we could be subject to losses if we fail to properly safeguard sensitive and confidential information. As part of our normal operations, we maintain and transmit confidential information about our clients as well as proprietary information relating to our business operations. Although we take protective measures, our systems could still be vulnerable to unauthorized access, computer viruses or other events that have a security impact, such as an authorized employee or vendor inadvertently or intentionally causing us to release confidential or proprietary information. Such disclosure could, among other things, allow competitors access to our proprietary business information and require significant time and expense to investigate and remediate the breach. Moreover, loss of confidential client information could harm our reputation and subject us to liability under laws that protect confidential personal data, resulting in increased costs or loss of revenues.

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Risks Relating to Particular Aspects of Our Real Estate, Financial Fund Management and Commercial Finance Operations

As a result of current conditions in the global credit markets, our ability to sponsor investment entities in our financial fund management business and increase our assets under management may be limited.

Our financial fund management business historically has consisted of the sponsorship and management of CDO issuers. As a result of conditions in the global credit markets, sponsorship of new CDOs was impracticable in fiscal 2010 and constrained significantly in fiscal 2011. Moreover, our ability to sponsor investment funds in our real estate segment is significantly affected by our ability to obtain financing for the funds and the assets they acquire. Although in both fiscal 2011 and 2012 we were able to obtain financing necessary for us and our investment funds, we are aware that, in general, lending standards are tighter and credit availability is more constricted than in the past. We cannot assure you that we will be able to obtain new financing or refinance existing financing in the future on acceptable financial terms, or at all. An inability to obtain financing could limit or eliminate our ability to sponsor investment entities and increase our assets under management and, accordingly, impair our ability to generate asset management fees.

We typically have retained some portion or all of the equity in the CDOs or CLOs we sponsored. CDO equity receives distributions from the CDO only if the CDO generates enough income to first pay the holders of the debt securities and the CDO's expenses.

We typically have retained some portion or all of the equity interest in CDOs and CLOs we sponsored either directly or through limited partnership investments. The equity is usually entitled to all of the income generated by the CDO after the CDO pays all of the interest due on the debt securities and its other expenses, and is entitled to a return on capital only when the principal amount and accrued interest of all of the debt securities has been paid. However, there will be little or no income available to the CDO equity if covenants regarding the operations of a CDO (primarily relating to the value of collateral and interest coverage) are not met, or if there are excessive payment defaults, payment deferrals or rating agency downgrades with respect to the issuers of the underlying collateral, and there may be little or no amounts available to return our capital. In that event, our revenues from and the value of our direct or indirect investment in the CDO's equity, which for all CDOs was $3.8 million at September 30, 2012, could decrease substantially or be eliminated. In addition, the equity securities of CDOs are generally illiquid and, because they represent a leveraged investment in the CDO's assets, the value of the equity securities will generally have greater fluctuations than the value of the underlying collateral.

In some of our investment funds, a portion of our management fees may depend upon the performance of the fund and, as a result, our management fee income may be volatile.

As of September 30, 2012, a portion of our management fees is subordinated to the investors' receipt of specified returns in 15 of the CDOs we manage. In addition, with respect to RSO and nine of our investment entities, we receive incentive or subordinated compensation in addition to our base management fee, depending upon whether RSO or those partnerships achieve returns above specified levels. During fiscal 2012 and 2011, we earned incentive and subordinated management fees from RSO and from 15 and 14 CDOs, respectively, which constituted 22% and 23%, respectively, of our aggregate management fee income for both periods. Continuing low growth or recessionary conditions in the national economy may result in the amount of incentive or subordinated management fee income we receive being reduced or possibly eliminated, and may cause these fees to be subject to high volatility.

Our real estate investment funds hold loans in their portfolios that are subject to a higher risk of loss than conventional mortgage loans.

The real estate investment funds that we have sponsored and manage, which we refer to as our RRE Funds, and from which we derive management and other fees, hold loans and/or direct investments in real estate. In many instances, the loans in their portfolios have terms that differ significantly from conventional mortgage loans. In particular, these loans may:

• be junior mortgage loans;

• involve payment structures other than equal periodic payments that retire a loan over its term;

• require the borrower to pay a large lump sum at loan maturity (which will depend upon the borrower's ability to obtain financing or otherwise raise a substantial amount of cash at maturity); and

• while producing income, do not generate sufficient revenues to pay the full amount of debt service on the loan as originally structured.

As a result, these real estate loans may have a higher risk of default and loss than conventional mortgage loans, and may require the RRE Funds to become involved in expensive and time-consuming workouts, or bankruptcy, reorganization or foreclosure proceedings.

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Both the RRE Funds' real estate held and the real estate securing their loans is typically the principal or sole source of recovery for these real estate loans, and thus the value and performance of the RRE Funds will depend upon local, regional and national economic conditions, and conditions affecting the property specifically, including the cost of compliance with, and liability under environmental, health and safety laws, changes in interest rates and the availability of financing, casualty losses, the attractiveness of the property, the availability of tenants, the ability of tenants to pay rent, competition from similar properties in the area and neighborhood values. Operating and other expenses of real properties, particularly significant expenses such as real estate taxes, insurance and maintenance costs, generally do not decrease when revenues decrease and, even if revenues increase, operating and other expenses may increase faster than revenues.

We will likely incur losses from our retention of the management of four equipment partnership funds.

In fiscal 2010, we transferred substantially all of our commercial finance operations to LEAF and, in November 2011, as a result of the November 2011 LEAF Transaction, we deconsolidated LEAF, while retaining a minority interest in it. However, we retained the obligation to manage four equipment leasing partnerships funds. In connection therewith, we have entered into a sub-servicing agreement with LEAF to service the leases held by these funds. Although we waived receipt of all future management fees, we are still obligated to pay sub-servicing fees to LEAF. Furthermore, we along with two of the commercial finance investment partnerships have provided a limited guarantee to the lender on debt outstanding on these respective investment partnerships (reference is made to Note 24 of the Notes to the Restated Consolidated Financial Statements, "Commitments and Contingencies").

We may be unable to continue to attract, motivate and retain key personnel, and the cost to retain key personnel could put pressure on our operating margin.

Our business depends on our ability to attract, motivate and retain highly skilled, and often highly specialized, technical, managerial and executive personnel; there is no assurance that we will be able to do so. If our revenues continue to decline during fiscal 2013, it will place significant added pressure on our ability to pay our employees at competitive levels. Our operating margin may decline if we increase compensation to retain key personnel without a commensurate increase in revenues.

Failure to comply with the Securities Exchange Act, Investment Advisers Act and the Investment Company Act and related regulations could result in substantial harm to our reputation and results of operations.

Certain of our subsidiaries, including our broker-dealer, are registered with the SEC under the Securities Exchange Act or the Investment Advisers Act. The Investment Advisers Act and the Securities Exchange Act impose numerous obligations and duties, respectively, on registered broker-dealers and registered investment advisers, including record-keeping, operating and marketing requirements, disclosure obligations and prohibitions on fraudulent activities, as well as additional detailed operational and compliance requirements. The failure of any of the relevant subsidiaries to comply with the either such act could cause the SEC to institute proceedings and impose sanctions for violations, including censure, fines or termination of registration, and could lead to harm to our reputation, any of which could cause our earnings or stock price to decline.

We have identified a material weakness in our internal control over the valuation of two of our legacy real estate investments that, if not remediated, could affect our ability to prepare timely and accurate financial reports, which could cause investors to lose confidence in our reported financial information and could have a negative effect on the trading price of our stock.

In connection with the preparation of this report, we identified and reported a material weakness in our internal controls over the valuation of two of our legacy real estate investments. As a result of this material weakness, we were unable to conclude that our internal control over financial reporting relating to the value assigned to these assets was effective as of September 30, 2012. Although we have instituted new controls to remediate this weakness, if these controls are not effective, our ability to prepare timely and accurate financial reports could be affected, which could cause investors to lose confidence in our reported financial information and could have a negative effect on the trading price of our common stock or our ability to obtain financing for our operations.

As of September 30, 2013, we identified a material weakness in our internal control over financial reporting. Failure to maintain an effective system of internal controls may result in investors losing confidence in our financial reporting and disclosures and the price of our common stock may decline.

We have identified deficiencies in our internal control over financial reporting, which we have determined constitutes a material weakness in such financial controls and, consequently, in our disclosure controls and procedure. We have implemented steps to remediate such deficiencies. We discuss these deficiencies and our remedial steps in Item 9A in this report. We cannot assure you that such remedial steps will address adequately these deficiencies or that we have discovered all of the deficiencies that may exist in our internal controls over financial reporting. Failure to maintain an effective system of internal controls may result in investors losing confidence in our financial reporting and disclosures and the price of our common stock may decline.

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As a result of our consolidation of RSO, our financial statements will be materially different from those we have heretofore issued as a separate entity, and will be affected by risks principally relating to RSO and not to us.

Following a re-evaluation of applicable accounting literature, management determined that we must treat RSO as a consolidated variable interest entity rather than as an unconsolidated variable interest entity as we have done previously. RSO has substantially greater assets, liabilities, revenues and expenses that we have as a separate company and, accordingly, our financial statements are substantially different from the financial statements we would present if we were not required to consolidate RSO. As a result of the consolidation of RSO, certain of the assets, liabilities, revenues and expenses set forth in our financial statements will be affected by risks affecting RSO. We refer you to a discussion of those risks set forth in Item 1A, “Risk Factors,” beginning on page 16 of RSO’s Annual Report on Form 10-K for the year ended December 31, 2012, a copy of which such discussion is attached to this report as Exhibit 99.4, and which is hereby incorporated herein by this reference.

ITEM 2.    PROPERTIES.

Philadelphia, Pennsylvania:

We maintain our executive and corporate offices at One Crescent Drive in the Philadelphia Navy Yard under a lease for 13,484 square feet that expires in May 2019. Certain of our financial fund management and real estate operations are also located in these offices and at another office building at One Commerce Square, 2005 Market Street, Philadelphia, Pennsylvania. The One Commerce Square lease, for 59,448 square feet, expired in August 2013 and was not renewed.

In addition, we leased 21,554 square feet of office space at 1845 Walnut Street, Philadelphia, Pennsylvania, which was primarily sublet toAtlas Energy, L.P., an affiliated entity. This lease which expired in May 2013 and was not renewed, is in an office building in which we own a 5% equity interest. In October 2012, we signed a ten-year lease which commenced in August 2013 for 28,930 square feet in another area of the building.

New York, New York:

We maintain additional executive offices in a 12,930 square foot location at 712 5^th Avenue, New York, New York under a lease agreement that expires in July 2020. We sublease a portion of this office space to The Bancorp, Inc., an affiliated entity.

Other Locations:

In addition, we maintain various office leases in the following cities: Omaha, Nebraska; El Segundo, California; and Denver, Colorado.

We also lease office space in London, England.

As of September 30, 2012, we believe that the properties we lease are suitable for our operations and adequate for our needs.

ITEM 3.    LEGAL PROCEEDINGS.

In September 2011, First Community Bank, or First Community, filed a complaint against First Tennessee Bank and approximately thirty other defendants, consisting of investment banks, rating agencies, collateral managers, including TCM, and issuers of CDOs, including Trapeza CDO XIII, Ltd. and Trapeza CDO XIII, Inc. TCM and the Trapeza CDO issuers are collectively referred to as Trapeza. The complaint includes causes of action against TCM for fraud, negligent misrepresentation, violation of the Tennessee Securities Act of 1980 and unjust enrichment. First Community alleges, among other things, that it invested in certain CDOs, that the defendant rating agencies assigned inflated investment grade ratings to the CDOs, and that the defendant investment banks, collateral managers and issuers (including Trapeza), fraudulently and/or negligently made “materially false and misleading representations and omissions” that First Community relied on in investing in the CDOs, including both written representations in offering materials and unspecified oral representations. Specifically, with respect to Trapeza, First Community alleges that it purchased $20 million of notes in the D tranche of the Trapeza CDO XIII transaction from J.P. Morgan. The Court dismissed this matter in June 2012. First Community filed a Notice of Appeal in July 2012.

We are also a party to various routine legal proceedings arising out of the ordinary course of our business. Management believes that none of these actions, individually or in the aggregate, will have a material adverse effect on our financial condition or operations.

17

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

Our common stock is quoted on the NASDAQ Global Select Market under the symbol "REXI."  The following table sets forth the high and low sale prices as reported by NASDAQ on a quarterly basis for our last two fiscal years:

	As Reported
	High		Low
Fiscal 2012
Fourth Quarter	$	6.91	$	6.00
Third Quarter	$	7.09	$	5.91
Second Quarter	$	6.63	$	4.84
First Quarter	$	5.03	$	4.28
Fiscal 2011
Fourth Quarter	$	6.25	$	4.39
Third Quarter	$	6.43	$	5.87
Second Quarter	$	7.18	$	6.18
First Quarter	$	6.86	$	5.75

As of December 3, 2012, there were approximately 19,978,423 shares of common stock outstanding (including 413,422 nonvested restricted stock shares) held by 228 holders of record.

We have paid regular quarterly cash dividends since the fourth quarter of fiscal 1995. Commencing with the dividend payable in the first quarter of fiscal 2006, we increased our quarterly dividend by 20% to $0.06 per common share and, beginning with the dividend payable in the first quarter of fiscal 2007 and continuing to the second quarter of fiscal 2009, we further increased our quarterly dividend by 17% to $0.07 per common share. In the third quarter of fiscal 2009, we reduced the dividend to $0.03 per common share, a decrease of 57%, in part due to the impact on us of the volatility and reduction in liquidity in the global credit markets. Subsequently, we have continued to declare a $0.03 quarterly dividend through September 30, 2012.

Until the $10.0 million of outstanding Senior Notes are paid in full (due in 2013), retired or repurchased, we cannot declare or pay future quarterly cash dividends in excess of $0.03 per share without the prior approval of all the holders of the Senior Notes unless our basic earnings per share from continuing operations for the preceding fiscal quarter exceeds $0.25 per share.

There are no restrictions imposed on the declaration of dividends under our credit facilities.

Issuer Purchases of Equity Securities

The following table provides information about purchases by us during the quarter ended September 30, 2012 of equity securities that are registered under Section 12 of the Securities Exchange Act of 1934:

Issuer Purchases of Equity Securities

Period	Total Number of Shares Purchased	Average Price Paid per Share (1)		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares that May Yet be Purchased Under the Plans or Programs
July 1 to July 31, 2012	—	$	—	—	993,831
August 1 to August 31, 2012	146,565	$	6.41	146,565	847,266
September 1 to September 30, 2012	65,838	$	6.53	212,403	781,428
Total	212,403	$	6.45

(1) The average price per share as reflected above includes broker fees and commissions.

18

On August 1, 2012, our Board of Directors authorized the repurchase up to 5% of our outstanding common shares. Share repurchases may be made from time to time through open market purchases or privately negotiated transactions at our discretion and in accordance with the rules of the U.S. Securities and Exchange Commission, as applicable.  The amount and timing of any repurchases will depend on market conditions and other factors.

Performance Graph

The following graph assumes that $100 was invested on October 1, 2006 in our common stock, or in the indicated index, and that all cash dividends were reinvested as received.  The cumulative total stockholder return on our common stock is then compared with the cumulative total return of two other stock market indicies, the NASDAQ United States Composite and the NASDAQ Financial 100.

Comparison of Five Year Cumulative Total Return

19

ITEM 6.    SELECTED FINANCIAL DATA.

The following selected financial data should be read together with our restated consolidated financial statements, the notes to our restated consolidated financial statements and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Item 7 of this report. We derived the selected restated consolidated financial data for each of the fiscal years ended September 30, 2012, 2011 and 2010, and as of September 30, 2012 and 2011 from our restated consolidated financial statements appearing elsewhere in this report, which have been audited by Grant Thornton LLP, an independent registered public accounting firm. We derived the selected financial data for the fiscal years ended September 30, 2009 and 2008 and as of September 30, 2010, 2009 and 2008 from our consolidated internal financial statements for those periods.

The statement of operations data and the balance sheet data for the fiscal years ended September 30, 2012 and 2011, and as of September 30, 2012 and 2011 have been restated to reflect the consolidation of RSO (as of and for their year ended December 31, 2012), an entity we had previously reflected as an unconsolidated variable interest entity, or VIE. Reference is made to Notes 2 and 26 to the notes to our restated consolidated financial statements.

The following table sets forth selected operating and balance sheet data:

20

	As of and for the Fiscal Years Ended September 30,
	2012			2011			2010			2009			2008
	(restated)			(restated)
	(in thousands, except per share data)
Statement of operations data:
Revenues:
Real estate (1)	$	40,595		$	38,380		$	31,911		$	25,417		$	31,519
Financial fund management (2)	21,957			25,841			33,140			33,344			27,536
Commercial finance (3)	1,884			21,795			23,677			48,767			93,016
Revenues from consolidated VIE - RSO	123,698			95,986			—			—			—
Elimination of consolidated VIE revenues attributed to operating segments	(17,234		)	(15,070		)	—			—			—
Total revenues	$	170,900		$	166,932		$	88,728		$	107,528		$	152,071
Income (loss) from continuing operations	$	87,862		21,811			$	(17,297	)	$	(16,090	)	$	(29,949	)
(Loss) income from discontinued operations, net of tax	(58		)	(2,202		)	622			(444		)	(1,299		)
Net income (loss)	87,804			19,609			(16,675		)	(16,534		)	(31,248		)
Net (income) loss attributable to noncontrolling interests	223			2,111			3,224			1,603			5,005
Net income attributable to noncontrolling interests - RSO	(62,520		)	(36,283		)	—			—			—
Net income (loss) attributable to common shareholders	$	25,507		$	(14,563	)	$	(13,451	)	$	(14,931	)	$	(26,243	)
Basic earnings (loss) per share attributable to common shareholders:
Continuing operations	$	1.29		$	(0.64	)	$	(0.74	)	$	(0.78	)	$	(1.40	)
Discontinued operations	—			(0.11		)	0.03			(0.03		)	(0.07		)
Net income (loss)	$	1.29		$	(0.75	)	$	(0.71	)	$	(0.81	)	$	(1.47	)
Diluted earnings (loss) per share attributable to common shareholders:
Continuing operations	$	1.24		$	(0.64	)	$	(0.74	)	$	(0.78	)	$	(1.40	)
Discontinued operations	—			(0.11		)	0.03			(0.03		)	(0.07		)
Net income (loss)	$	1.24		$	(0.75	)	$	(0.71	)	$	(0.81	)	$	(1.47	)
Dividends declared per common share	$	0.12		0.12			$	0.09		$	0.20		$	0.28
Amounts attributable to common shareholders:
Income (loss) from continuing operations	$	25,565		$	(12,361	)	$	(14,073	)	$	(14,487	)	$	(24,944	)
Discontinued operations	(58		)	(2,202		)	622			(444		)	(1,299		)
Net income (loss)	$	25,507		$	(14,563	)	$	(13,451	)	$	(14,931	)	$	(26,243	)
Balance sheet data:
Total assets	$	2,644,263		$	2,636,985		$	233,842		$	373,794		$	757,297
Total net assets (4)	$	167,813		$	399,750		$	233,842		$	373,794		$	757,297
Borrowings	$	21,343		$	214,054		$	66,110		$	191,383		$	554,059
Borrowings of consolidated VIE - RSO	$	1,785,600		$	1,794,083		$	—		$	—		$	—
Total stockholders' equity attributable to common shareholders	$	155,598		$	131,590		$	120,368		$	139,818		$	143,733
Total equity	$	737,256		$	528,698		$	129,084		$	140,141		$	146,343

(1)    Includes revenues of $10,667 and $6,968 related to RSO

(2)    Includes revenues of $7,424 and $5,536 related to RSO

(3)    Includes revenues of $0 and $144 related to RSO

(4)    Total net assets excludes the assets of consolidated VIE - RSO

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The following sets forth the effect of the restatement on the applicable line items in the Company's selected financial data as of and for the fiscal year ended September 30, 2012, which consolidates RSO as of and for their calendar year ended December 31, 2012 (in thousands, except per share data):

	As of and for the Fiscal Year Ended
	September 30, 2012
	As Previously Reported			RSO			Eliminations			As Restated
Statement of operations data:
Revenues:
Real estate	$	40,595		$	—		$	—		$	40,595
Financial fund management	21,957			—			—			21,957
Commercial finance	1,884			—			—			1,884
	64,436			—			—			64,436
Revenues from consolidated VIE - RSO	—			123,698			—			123,698
Elimination of consolidated VIE revenues attributed to operating segments	—			—			(17,234		)	(17,234		)
Total revenues	$	64,436		$	123,698		$	(17,234	)	$	170,900
Income (loss) from continuing operations	$	26,240		64,443			(2,821		)	$	87,862
Loss from discontinued operations, net of tax	(58		)	—			—			(58		)
Net income	26,182			64,443			(2,821		)	87,804
Net (income) loss attributable to noncontrolling interests - RAI	(348		)	—			571			223
Net income attributable to noncontrolling interests - RSO	—			(62,520		)	—			(62,520		)
Net income (loss) attributable to common shareholders	$	25,834		$	1,923		$	(2,250	)	$	25,507
Basic earnings per share attributable to common shareholders:
Continuing operations	$	1.31								$	1.29
Discontinued operations	—									—
Net income	$	1.31								$	1.29
Diluted earnings per share attributable to common shareholders:
Continuing operations	$	1.25								$	1.24
Discontinued operations	—									—
Net income	$	1.25								$	1.24
Dividends declared per common share	$	0.12								$	0.12
Amounts attributable to common shareholders:
Income (loss) from continuing operations	$	25,892		$	1,923		$	(2,250	)	$	25,565
Discontinued operations	(58		)	—			—			(58		)
Net income (loss)	$	25,834		$	1,923		$	(2,250	)	$	25,507
Balance sheet data:
Total assets	$	196,743		$	2,478,251		$	(30,731	)	$	2,644,263
Borrowings (excluding borrowings of consolidated VIE - RSO)	$	23,020		$	—		$	(1,677	)	$	21,343
Total equity	$	146,301		$	613,345		$	(22,390	)	$	737,256

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The following sets forth the effect of the restatement on the applicable line items in the Company's selected financial data as of and for the fiscal year ended September 30, 2011 incorporating RSO for the calendar year ended December 31, 2011(in thousands, except per share data):

	As of and for the Fiscal Year Ended
	September 30, 2011
	As Previously Reported			RSO			Eliminations			As Restated
Statement of operations data:
Revenues:
Real estate	$	38,380		$	—		$	—		$	38,380
Financial fund management	25,841			—			—			25,841
Commercial finance	21,795			—			—			21,795
	86,016			—			—			86,016
Revenues from consolidated VIE - RSO	—			95,986			—			95,986
Elimination of consolidated VIE revenues attributed to operating segments	—			—			(15,070		)	(15,070		)
Total revenues	86,016			95,986			(15,070		)	166,932
(Loss) income from continuing operations	$	(5,227	)	37,716			(10,678		)	$	21,811
Loss from discontinued operations, net of tax	(2,202		)	—			—			(2,202		)
Net (loss) income	(7,429		)	37,716			(10,678		)	19,609
Net (income) loss attributable to noncontrolling interests	(799		)	—			2,910			2,111
Net income attributable to noncontrolling interests - RSO	—			(36,283		)	—			(36,283		)
Net (loss) income attributable to common shareholders	$	(8,228	)	$	1,433		$	(7,768	)	$	(14,563	)
Basic loss per share attributable to common shareholders:
Continuing operations	$	(0.31	)							$	(0.64	)
Discontinued operations	(0.11		)							(0.11		)
Net loss	$	(0.42	)							$	(0.75	)
Diluted loss per share attributable to common shareholders:
Continuing operations	$	(0.31	)							$	(0.64	)
Discontinued operations	(0.11		)							(0.11		)
Net loss	$	(0.42	)							$	(0.75	)
Dividends declared per common share	$	0.12								$	0.12
Amounts attributable to common shareholders:
(Loss) income from continuing operations	$	(6,026	)	$	1,433		$	(7,768	)	$	(12,361	)
Discontinued operations	(2,202		)	—			—			(2,202		)
Net (loss) income	$	(8,228	)	$	1,433		$	(7,768	)	$	(14,563	)
Balance sheet data:
Total assets	$	422,506		$	2,284,724		$	(70,245	)	$	2,636,985
Borrowings (excluding borrowings of consolidated VIE - RSO)	$	222,659		$	—		$	(8,605	)	$	214,054
Total equity	$	157,728		$	429,690		$	(58,720	)	$	528,698

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Overview

Commencing in Fiscal 2011, we implemented the accounting guidance related to the consolidation of variable interest entities, or VIEs and, accordingly, the financial information presented for fiscal years 2012 and 2011 reflects the operations and assets of Resource Capital Corp, a publicly-traded real estate investment trust, or REIT, which we sponsored and manage (NYSE: RSO), on a consolidated basis with our operations and assets. In management’s discussion and analysis that follows, we analyze the Resource America operations by its three business segments: Real Estate, Financial Fund Management, and Commercial Finance and one segment, RSO, which is a consolidated VIE. Each of our operating segments earns fees for acquiring, managing, and/or financing certain assets on behalf of RSO, for which we receive payment. These revenues are included in the tables that follow and then eliminated in order to reflect the consolidation of RSO for accounting purposes. The impact of the consolidation is significant to the presentation of our financial statements but is not material to our financial condition, results of operations or cash flows as reflected in Note 2 of the Notes to Restated Consolidated Financial Statements in Item 8 of this Report.

We are a specialized asset management company that uses industry specific expertise to evaluate, originate, service and manage investment opportunities through our real estate, financial fund management and commercial finance subsidiaries as well as our joint ventures. As a specialized asset manager, we seek to develop investment funds for outside investors for which we provide asset management services, typically under long-term management arrangements either through a contract with, or as the manager or general partner of, our sponsored investment funds. We typically maintain an investment in the funds we sponsor. As of September 30, 2012, we managed $14.9 billion of assets.

We limit our fund development and management services to asset classes where we own existing operating companies or have specific expertise. We believe this strategy enhances the return on investment we can achieve for our funds. In our real estate operations, we concentrate on the ownership, operation and management of multifamily and commercial real estate and real estate mortgage loans including whole mortgage loans, first priority interests in commercial mortgage loans, known as A notes, subordinated interests in first mortgage loans, known as B notes, mezzanine loans, investments in discounted and distressed real estate loans and investments in “value-added” properties (properties which, although not distressed, need substantial improvements to reach their full investment potential). In our financial fund management operations, we concentrate on bank loans, trust preferred securities of banks, bank holding companies, insurance companies and other financial companies, and asset backed securities, or ABS.

In our real estate segment, we have focused our efforts primarily on acquiring and managing a diversified portfolio of commercial real estate and real estate related debt that has been significantly discounted due to the effects of current economic conditions and high levels of leverage. We expect to continue to expand this business by raising investor funds through our retail broker channel for investment programs, principally through Resource Real Estate Opportunity REIT, Inc. which we refer to as RRE Opportunity REIT.

In April 2012, we completed the sale of our common equity interests in Apidos Capital Management, LLC, or Apidos, our former CLO management subsidiary, to CVC Capital Partners SICAV-FIS, S.A., a private equity firm, or CVC. In connection with the transaction, we received $25.0 million in cash (before transaction costs) and 33% partnership interests in a joint venture, CVC Credit Partners, L.P., or CVC Credit Partners, which includes the Apidos portfolio as well as the portfolio contributed by CVC. Additionally, we retained a preferred equity interest in Apidos, which entitles us to receive 75% of the incentive management fees from the legacy Apidos portfolios that were previously managed by us and are now managed by CVC Credit Partners. We recorded a $54.5 million net gain on the sale.

In our financial fund management segment, our recent focus has primarily been the sponsorship and management of collateralized debt and loan obligations, or CLOs and CDOs. In October 2011, on behalf of RSO, and third-party investors, we closed Apidos CLO VIII ($350.0 million of par value). Through our CVC Credit Partners joint venture, we closed Apidos CLO IX ($409.8 million of par value) in July 2012 and Apidos CLO X ($450.0 million of par value) in November 2012. For fiscal 2013, we expect to continue to focus on managing our existing assets as well as to continue to expand our CLO business through our joint venture.

24

Our commercial finance operations underwent significant restructuring and recapitalization during fiscal 2011 and the first quarter of fiscal 2012. These transactions provided substantial amounts of equity and debt financing to the lease origination and servicing platform, which is now held by LEAF Commercial Capital, Inc., or LEAF. Our subsidiary, LEAF Financial Corporation, retained the partnership management operations. As a result of the recapitalization, our equity interest in LEAF was reduced to 14.9% on a fully diluted basis, and we have deconsolidated LEAF from our financial statements as of November 16, 2011. We recorded an $8.7 million gain on the deconsolidation of LEAF, inclusive of a $1.7 million remeasurement gain to reflect our investment in LEAF at fair value during our first fiscal quarter ended December 31, 2011. Due to the deconsolidation of LEAF, we have decreased our total assets at September 30, 2012 by $227.9 million and our outstanding borrowings by $184.7 million from the corresponding balances reported at September 30, 2011. We currently account for our interests in LEAF as an equity method investment. From November 16, 2011 to March 31, 2012, the equity losses we recorded from LEAF reduced our investment to zero as of March 31, 2012. In addition, we have recorded provisions for credit losses of $16.8 million during fiscal 2012 on our receivables due from three of our commercial finance investment funds based on reductions in their projected cash flows.

During fiscal 2012, we further improved our balance sheet and liquidity by refinancing our existing corporate debt. In November 2011, we redeemed $8.8 million of our Senior Notes and modified the remaining $10.0 million of notes to reduce the interest rate to 9% from 12% and to extend the maturity to October 2013. In conjunction with the modification of the notes, we accelerated the amortization of the warrant cost associated with the original issuance and, accordingly, recorded a loss on extinguishment of debt of $2.2 million during fiscal 2012. In October and November 2012, we amended our corporate credit facilities with Republic Bank and TD Bank, respectively, to extend the maturities of those facilities to December 2014. As of November 30, 2012, we have $10.5 million of availability under these two facilities.

We recorded consolidated net income attributable to common shareholders of $25.5 million for fiscal 2012. This was primarily the result of recording a $36.0 net gain (net of tax of $18.5 million) from the sale of Apidos, offset, in part, by an $11.1 million (net of tax of $5.7 million) provision for credit losses on our receivables from the commercial finance funds.

Presentation of Managements’ Discussion and Analysis of Financial Condition and Results of Operations.

Our financial statements have been prepared to consolidate the financial statements of RSO. Our operating segments manage assets on behalf of RSO and the compensation we earn under the terms of our management agreement with RSO is allocated across our operating segments in proportion to the management services each segment provides to RSO.

The impact of consolidation is significant to the presentation of our financial statements, but not to our financial condition or results of operations. The assets of RSO are held solely to satisfy RSO’s obligations and the creditors of RSO have no recourse to us. Our rights to the benefits of RSO are limited to the management compensation and expense reimbursements we receive and our risks associated with being an investor in RSO are limited to our 2.7% ownership position.

The operating results and the discussion that follows the description of each of our operating segments is presented before the consolidation of RSO to appropriately reflect the manner in which we conduct our operations. Management believes that excluding the fees earned by us under the terms of the management agreement with RSO that are eliminated upon consolidation may impact a reader’s analysis and understanding of our results of operations.

Assets Under Management

We increased our assets under management by $1.6 billion to $14.9 billion at September 30, 2012 from $13.3 billion at September 30, 2011. The following table sets forth information relating to our assets under management by operating segment (in millions, except percentages) ⁽¹⁾:

	September 30,				Increase (Decrease)
	2012		2011		Amount				Percentage
Financial fund management (2)	$	12,665	$	11,102	$	1,563		(2)	14%
Real estate	1,735		1,617		118				7%
Commercial finance	520		585		(65		)		(11)%
	$	14,920	$	13,304	$	1,616			12%

(1) For information on how we calculate assets under management, see the first table and related notes in Item 1, “Business - Assets Under Management.”

(2) The increase is primarily due to the $2.0 billion addition of the CVC portfolio contributed to CVC Credit Partners in which we own 33% and the addition of Apidos CLO VIII with $351.4 million and Apidos CLO IX with $398.4 million of assets, respectively. This increase was offset, in part, by reductions in the eligible collateral bases of our ABS ($312.8 million), corporate loan ($158.6 million) and trust preferred portfolios ($247.3 million) resulting from defaults, paydowns, sales and calls.

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Our assets under management are primarily managed through various investment entities including CDOs and CLOs, public and private limited partnerships, TIC property interest programs, two REITs, and other investment funds. The following table sets forth the number of entities we manage by operating segment:

	CDOs and CLOs	Limited Partnerships	TIC Programs	Other Investment Funds
As of September 30, 2012(1)
Financial fund management	43	13	—	3
Real estate	2	9	6	5
Commercial finance	—	4	—	2
	45	26	6	10
As of September 30, 2011(1)
Financial fund management	37	13	—	1
Real estate	2	8	6	5
Commercial finance	—	4	—	2
	39	25	6	8

(1) All of our operating segments manage assets on behalf of RSO.

The revenues in each of our operating segments are generated by the fees we earn for structuring and managing the investment entities we sponsored on behalf of individual and institutional investors and RSO, and the income produced by the assets and investments we manage for our own account. The following table sets forth information about our revenue sources (in thousands): 

	Fiscal Years Ended September 30,
	2012			2011			2010
	(restated)			(restated)
Fund management revenues (1)	$	33,062		$	43,521		$	51,411
Finance and rental revenues (2)	12,903			27,738			20,281
RSO management fees (3)	15,927			11,496			10,649
Gains on resolution of loans (4)	84			196			2,870
Other revenues (5)	2,460			3,065			3,517
Subtotal - Resource America revenues before consolidating with RSO	64,436			86,016			88,728
RSO - consolidated VIE revenues	123,698			95,986			—
Elimination of consolidated VIE revenues attributed to operating segments	(17,234		)	(15,070		)	—
	$	170,900		$	166,932		$	88,728

(1) Includes fees from each of our real estate, financial fund management and commercial finance operations and our share of the income or loss from limited and general partnership interests we own in our real estate, financial fund management and commercial finance operations.

(2) Includes rental income, revenues from certain real estate assets and interest income on bank loans from our financial fund management operations. For periods prior to November 2011, includes interest and rental income from our commercial finance operations.

(3) Reflects the various management fees that are received by our operating segments acquiring, managing, and financing the assets of RSO. These fees are eliminated in reporting the consolidated results of Resource America including RSO.

(4)    Includes the resolution of loans we hold in our real estate segment.

(5) For periods prior to November 2011, primarily include insurance fees, documentation fees and other charges earned by our commercial finance operations.

We provide a more detailed discussion of the revenues generated by each of our business segments under “-Results of Operations:  “:Real Estate”, “:Financial Fund Management”, and “:Commercial Finance.”

26

Results of Operations:  Real Estate

During fiscal 2012, we continued to redirect the focus of our real estate subsidiary, Resource Real Estate, Inc., from acquiring and managing performing multifamily assets to (a) acquiring and managing a diversified portfolio of commercial real estate and real estate related debt that have been significantly discounted due to the effects of economic events and high levels of leverage; and (b) managing existing assets for our real estate programs. We formed RRE Opportunity REIT, which will further invest in discounted commercial real estate and real estate related debt. The public offering for this fund commenced in June 2010. Through September 30, 2012, RRE Opportunity REIT has raised $168.1 million through its public and private offerings, acquired three properties and ten real estate loans, foreclosed on six loans, and has received a discounted settlement payment on one loan. For fiscal 2013, we expect that our primary fundraising efforts in our real estate segment will be focused on RRE Opportunity REIT.

Through our real estate segment, we focus on four different areas:

• the acquisition, ownership and management of portfolios of discounted real estate and real estate related debt, which we have acquired through two sponsored real estate investment entities as well as through joint ventures with institutional investors;

• the management of sponsored real estate investment entities that principally invest in multifamily housing;

• the management, principally for RSO, of general investments in commercial real estate debt, including first mortgage debt, whole loans, mortgage participations, B notes, mezzanine debt and related commercial real estate securities; and

• to a significantly lesser extent, the management and resolution of a portfolio of real estate loans and property interests that we acquired at various times between 1991 and 1999, which we collectively refer to as our legacy portfolio.

The following table sets forth information related to real estate assets managed ⁽¹⁾ (in millions):

	September 30,
	2012		2011
Assets under management(1):
Commercial real estate debt	$	871	$	760
Real estate investment funds and programs	578		566
RRE Opportunity REIT	107		36
Distressed portfolios	80		161
Properties managed for RSO	64		60
Institutional portfolios	15		15
Legacy portfolio	20		19
	$	1,735	$	1,617

(1) For information on how we calculate assets under management, see Item 1, “Business − “Assets under Management.”

We support our real estate investment funds by making long-term investments in them.  In addition, from time to time, we make bridge investments in the funds to facilitate acquisitions.  We record losses on these equity method investments primarily as a result of depreciation and amortization expense recorded by the property interests. Fee income can be highly variable and, for fiscal 2013, will depend upon the success of RRE Opportunity REIT and the timing of its acquisitions.

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The following table sets forth information relating to the revenues recognized and costs and expenses incurred in our real estate operations (in thousands): 

	Fiscal Years Ended September 30,
	2012		2011		2010
Revenues:
Management fees:
Asset management fees	$	8,045	$	6,435	$	4,842
Resource Residential property management fees	7,190		6,063		5,296
REIT management fees from RSO	8,966		6,706		7,775
	24,201		19,204		17,913
Other:
Rental property income and revenues of consolidated VIEs (1)	4,961		4,761		4,644
Master lease revenues	4,175		4,080		4,002
Fee income from sponsorship of investment entities	4,741		2,034		1,500
Interest, including accreted loan discount	—		—		113
Gains and fees on resolution of loans and other property interests	84		196		2,870
Equity in earnings of unconsolidated entities	2,433		8,105		869
	$	40,595	$	38,380	$	31,911
Costs and expenses:
General and administrative expenses	$	15,106	$	10,515	$	7,718
Resource Residential property management expenses	6,869		6,076		4,870
Master lease expenses	4,173		4,448		4,791
Rental property expenses and expenses of consolidated VIEs (1)	3,521		3,426		3,401
	$	29,669	$	24,465	$	20,780

(1) We generally consolidate a variable interest entity, or VIE, when we are deemed to be the primary beneficiary of the entity.

Revenues − Fiscal 2012 Compared to Fiscal 2011

Revenues from our real estate operations increased $2.2 million to $40.6 million for fiscal 2012 from 2011.  We attribute the increase primarily to the following:

Management fees

• a $1.6 million increase in asset management fees, reflecting the additional properties in our distressed loan portfolio;

• a $1.1 million increase in property management fees earned by our property manager, Resource Residential, reflecting a 2,762 unit increase (18%) in multifamily units under management to 17,979 units at September 30, 2012 from 15,217 units at September 30, 2011; and

• a $2.3 million increase in REIT management fees from RSO. The base management fees increased by $971,000 due to the increase in the equity we manage for RSO and the incentive management fees increased by $1.3 million which are based on the adjusted operating earnings of RSO, which varies by quarter.

Other revenues

• a $2.7 million increase in fee income in connection with the purchase and third-party financing of properties through our real estate investment entities, as follows:

• during fiscal 2012, we earned $4.7 million in fees primarily from the following activities:

• the acquisition of three properties (valued at $64.2 million) and three loans (valued at $23.6 million); and

• the sale of four properties (valued at $46.7 million) and two loans (valued at $920,000).

• during fiscal 2011, we earned $2.0 million in fees primarily from the following activities:

• the acquisition of seven loans and a pool of four loans (aggregate value of $71.3 million);

• the acquisition of two properties on behalf of RSO; and

• the sale of buildings owned by two of our equity investments and one building we managed.

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This increase was more than offset by

• a $5.7 million decrease in the equity in earnings of unconsolidated entities. During fiscal 2012, we earned equity income of $2.4 million. During fiscal 2011, we had recorded $8.1 million of equity income, primarily reflecting the $8.4 million gain from the sale of a Washington DC office building by one of our legacy portfolio investments, offset, in part, by $755,000 of equity losses in our real estate investment partnerships.

Costs and Expenses − Fiscal 2012 Compared to Fiscal 2011

Costs and expenses of our real estate operations increased $5.2 million (21%). We attribute these changes primarily to the following:

• a $4.6 million increase in general and administrative expenses principally related to:

• $1.0 million of start-up costs related to RRE Opportunity REIT; and

• a $2.9 million increase in wages and benefits, reflecting the additional staffing required to manage the increased properties under management as well as the wholesalers hired to increase our fundraising capabilities; and

• a $793,000 increase in Resource Residential expenses due to increased wages and benefits, principally in conjunction with the additional personnel needed to operate and manage the increase in properties.

Revenues − Fiscal 2011 Compared to Fiscal 2010

Revenues from our real estate operations increased $6.5 million (20%) to $38.4 million for fiscal 2011 from $31.9 million in fiscal 2010.  We attribute the increase primarily to the following:

Management fees

• a $1.6 million increase in asset management fees, reflecting the additional properties in our distressed loan portfolio; and

• a $767,000 increase in property management fees earned by our property manager, Resource Residential, reflecting a 1,695 unit increase (13%) in multifamily units under management to 15,217 units at September 30, 2011 from 13,522 units at September 30, 2010.

These increases were offset, in part, by

• a $1.1 million decrease in REIT management fees from RSO. The $1.6 million increase in the base management fee, which increased as a result of equity capital raised though RSO’s dividend reinvestment and share purchase program, was more than offset by a $2.6 million decrease in the incentive management fee for fiscal 2011 as compared to fiscal 2010.

Other revenues

•a $534,000 increase in fee income in connection with the purchase and third-party financing of properties through our real estate investment entities, as follows:

• during fiscal 2011, we earned $2.0 million in fees primarily from the following activities:

• the acquisition of seven loans and a pool of four loans (aggregate value of $71.3 million);

• the acquisition of two properties on behalf of RSO; and

• the sale of buildings owned by two of our equity investments and one building we managed.

• during fiscal 2010, we earned $1.5 million in fees primarily from the following activities:

• the acquisition of six loans (aggregate value of $81.1 million); and

• the acquisition of four properties (aggregate value of $19.3 million).

• a $7.2 million increase in the equity in earnings of unconsolidated entities.  During fiscal 2011, we recorded an $8.4 million equity gain from the sale of a Washington DC office building by one of our legacy portfolio investments, which was offset, in part, by the equity losses from our real estate investment partnerships of $755,000, as compared to equity losses of $624,000 recorded the prior year.

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These increases were offset, in part, by

• a $2.7 million decrease in gains and fees on the resolution of loans and other property interests.  During fiscal 2010, we recorded a gain of $1.9 million (proceeds of $4.8 million) on the settlement of a loan, a gain of $642,000 on the sale of an asset by a joint venture, and a gain of $145,000 from another asset sale (proceeds of $260,000). Additionally, we received proceeds of $2.1 million, including a cost reimbursement of $101,000, from the sale of a joint venture interest to RSO.

Costs and Expenses − Fiscal 2011 Compared to Fiscal 2010

Costs and expenses of our real estate operations increased $3.7 million (18%).  We attribute these changes primarily to the following:

•  a $2.8 million increase in general and administrative expenses related principally to the start-up costs of RRE Opportunity REIT; and

• a $1.2 million increase in Resource Residential expenses due to increased wages and benefits, principally in conjunction with the additional personnel needed to operate and manage the increase in properties.

Results of Operations:  Financial Fund Management

General. We conduct our financial fund management operations primarily through six separate operating entities:

• CVC Credit Partners, a joint venture between us and an unrelated third-party, finances, structures and manages investments in bank loans, high yield bonds and equity investments through CLO issuers, managed accounts and a credit opportunities fund. Prior to April 17, 2012, we conducted these operations through our Apidos business;

• Trapeza Capital Management, LLC, or TCM, a joint venture between us and an unrelated third-party, manages investments in trust preferred securities and senior debt securities of banks, bank holding companies, insurance companies and other financial companies through CDO issuers and related partnerships. TCM, together with the Trapeza CDO issuers and Trapeza partnerships, are collectively referred to as Trapeza;

• Resource Financial Institutions Group, Inc., or RFIG, serves as the general partner for seven company-sponsored affiliated partnerships which invest in financial institutions;

• Ischus Capital Management, LLC, or Ischus, finances, structures and manages investments in ABS including residential mortgage-backed securities, or RMBS, and commercial mortgage-backed securities, or CMBS;

• Resource Capital Markets, Inc., or Resource Capital Markets, through our registered broker-dealer subsidiary, Resource Securities, Inc. (formerly Chadwick Securities, Inc.), or Resource Securities, acts as an agent in the primary and secondary markets for structured finance securities and manages accounts for institutional investors; and

• Resource Capital Manager, Inc., or RCM, an indirect wholly-owned subsidiary, provides investment management and administrative services to RSO under a management agreement between us, RCM and RSO.

The following table sets forth information relating to assets managed by our financial fund management operating entities on behalf of institutional and individual investors and RSO (in millions) ⁽¹⁾:

	Institutional and Individual Investors		RSO		Total by Type
September 30, 2012:
CVC Credit Partners (2)	$	4,856	$	2,799	$	7,655
Trapeza	3,642		—		3,642
Ischus	1,263		—		1,263
Other company-sponsored partnerships	90		15		105
	$	9,851	$	2,814	$	12,665
September 30, 2011:
Apidos (2)	$	2,704	$	2,814	$	5,518
Trapeza	3,890		—		3,890
Ischus	1,576		—		1,576
Other company-sponsored partnerships	87		31		118
	$	8,257	$	2,845	$	11,102

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(1) For information on how we calculate assets under management, see the first table and related notes in Item 1, “Business – Assets Under Management.”

(2) In April 2012, we sold 100% of Apidos to CVC and retained a 33% interest in CVC Credit Partners, which manages the former Apidos portfolio as well as the portfolio contributed by CVC.

In our financial fund management operating segment, we earn monthly fees on assets managed on behalf of institutional and individual investors as follows:

• Collateral management fees − we receive fees for managing the assets held by CLO and CDO issuers we have sponsored, including subordinate and incentive fees. These fees vary by issuer, with our annual fees ranging between 0.1% and 0.35% of the aggregate principal balance of the eligible collateral owned by the issuers. The indentures to the notes require that certain overcollateralization test ratios, or O/C ratios, be maintained. O/C ratios measure the ratio of assets (collateral) to liabilities (notes) of a given issuer. Losses incurred on collateral due to payment defaults, payment deferrals or rating agency downgrades reduce the O/C ratios. If specified O/C ratios are not met by an issuer, subordinate or incentive management fees, which are discussed in the following sections, are deferred and interest collections from collateral are applied to outstanding principal balances on the notes, typically in order of seniority.

• Administration fees − we receive fees for managing the assets held by our company-sponsored partnerships and credit opportunities fund. These fees vary by limited partnership or fund, with our annual fee ranging between 0.75% and 2.00% of the partnership or fund capital balance.

Based on the terms of our general partner interests, two of the Trapeza partnerships we manage as general partner include a clawback provision.

We discuss the basis for our fees and revenues for each area in more detail in the following sections.

Our financial fund management operations historically have depended upon our ability to sponsor and manage CLO and CDO issuers. During the past several years, the market for CDOs has been non-existent and for CLOs in the asset classes we manage has been extremely limited. In October 2011, we were able to sponsor Apidos CLO VIII, the first such deal we closed since fiscal 2007. In July 2012, CVC Credit Partners closed its first CLO, Apidos CLO IX and in November 2012, closed Apidos CLO X.

CVC Credit Partners

Through CVC Credit Partners, we and our joint venture partner have sponsored, structured and/or currently manage 21 CLO issuers for institutional and individual investors and RSO. These joint venture issuers, accounts and funds hold approximately $7.7 billion in U.S. and European bank loans and corporate bonds at September 2012, of which $2.8 billion are managed on behalf of RSO.

Under our former Apidos business, we derived revenues through base and subordinate management fees. Base management fees varied by CLO issuer (ranged between 0.01% and 0.15% of the aggregate principal balance of eligible collateral held by the CLO issuers). Subordinate management fees, which also varied by CLO issuer (ranged between 0.04% and 0.40% of the aggregate principal balance of eligible collateral held by the CLO issuers), were subordinated to debt service payments on the CLOs. Though we were entitled to receive incentive management fees, which were also subordinate to debt service payments, we did not receive any such fees in fiscal 2012 or 2011.

As a result of the sale and resulting deconsolidation of Apidos, we no longer reflect the revenues and expenses of the Apidos business in our consolidated results, and instead record our 33% equity interest in the operations of CVC Credit Partners.

Trapeza

In our Trapeza operations, we sponsored, structured and currently co-manage 13 CDO issuers holding approximately $3.6 billion in trust preferred securities of banks, bank holding companies, insurance companies and other financial companies.

We own a 50% interest in an entity that manages 11 Trapeza CDO issuers and a 33.33% interest in another entity that manages two Trapeza CDO issuers. We also own a 50% interest in the general partners of the limited partnerships that own the equity interests of five Trapeza CDO issuers. Additionally, as part of our sponsorship and management interest, we hold limited partnership interests in each of these limited partnerships. On November 1, 2009 and January 28, 2010, those general partners repurchased substantially all of the remaining limited partnership interests in two of the Trapeza entities.

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We derive revenues from our Trapeza operations through base management fees. Base management fees vary by CDO issuer, but range from between 0.10% and 0.25% of the aggregate principal balance of the eligible collateral held by the CDO issuers. These fees are shared with our cosponsors.

Ischus

We sponsored, structured and/or currently manage nine CDO issuers for institutional and individual investors, which hold approximately $1.3 billion in primarily real estate ABS including RMBS, CMBS and credit default swaps.

We derive revenues from our Ischus operations through base management fees. Base management fees vary by CDO issuer, ranging from between 0.10% and 0.20% of the aggregate principal balance of eligible collateral held by the CDO issuer.

Company-Sponsored Partnerships

We sponsored, structured and, through RFIG, currently manage seven affiliated partnerships for individual and institutional investors, which hold approximately $62.0 million of investments in financial institutions. We derive revenues from these operations through annual management fees, based on 2.0% of equity. As part of our sponsorship, management and general partnership interests, we hold limited partnership interests in these partnerships. We may receive a carried interest of up to 20% upon meeting specific investor return rates.

Since March 2009, we have sponsored and managed an affiliated partnership organized as a credit opportunities fund which holds approximately $27.7 million in bank loans, high yield bonds and uninvested capital. The partnership pays its manager quarterly in-advance base management fees of 1.5%, and annual incentive management fees calculated at 20% of the partnership's annual net profits, subject to a loss carryforward provision and an investor hurdle rate. In connection with the sale of Apidos in April 2012, we will no longer earn management and incentive fees from the partnership, but will continue to earn fee revenues through our 33% joint venture. Our general partner interest in the partnership was sold to CVC for approximately $250,000, while retaining our limited partner interest.

Through our Resource Capital Markets group, we engage in structured finance security trading, both as an agent, through Resource Securities, and for our own account. We earn introductory agent fees which are negotiated on a deal-by-deal basis. In our own trading portfolio, we buy and sell structured finance securities and record both unrealized and realized gains and losses in Financial fund management revenues.     

The following table sets forth certain information relating to the revenues recognized and costs and expenses incurred in our financial fund management operations (in thousands):

	Fiscal Years Ended September 30,
	2012		2011			2010
	(restated)		(restated)
Revenues:
Fund management fees	$	9,500	$	15,601		$	16,419
RSO management fees - trading portfolio	5,926		2,974			—
RSO management fees	1,035		1,774			2,718
Introductory agent fees	1,234		4,538			7,713
Equity in earnings of unconsolidated CDO issuers	823		948			2,118
Equity in earnings of CVC Credit Partners	568		—			—
Gains, net, on trading securities	2,030		—			—
Interest income on loans	—		—			860
Other revenues	61		7			838
	21,177		25,842			30,666
Total limited and general partner interests	780		(1		)	2,474
	$	21,957	$	25,841		$	33,140
Costs and expenses:
General and administrative expenses	$	11,623	$	17,621		$	20,799
Other costs and expenses	5,463		2,941			229
	$	17,086	$	20,562		$	21,028

Fees and/or reimbursements that we receive vary by transaction and, accordingly, there may be significant variations in the revenues we recognize from our financial fund management operations from period to period.

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Revenues − Fiscal 2012 Compared to Fiscal 2011

Revenues decreased $3.9 million (15%) to $22.0 million in fiscal 2012 from $25.8 million in fiscal 2011. We attribute the decrease to the following:

• a $6.1 million decrease in fund management fees, principally from the following:

• a $5.6 million decrease in CDO collateral management and partnership management fees as a result of the sale of Apidos;

• a $326,000 decrease in collateral management fees from our Ischus operations primarily as a result of rating agency downgrades which had the effect of reducing the eligible collateral base upon which our management fees are calculated; and

• a $94,000 decrease in base management fees from our Trapeza operations, primarily as a result of portfolio defaults which reduced the eligible collateral base upon which our management fees are calculated.

• a $3.0 million increase in incentive management fees earned on managing a trading portfolio on behalf of RSO;

• a $739,000 decrease in RSO management fees due to the sale of Apidos including a $494,000 decrease in base management fees and a $245,000 decrease in incentive management fees;

• a $3.3 million decrease in introductory agent fees as a result of fees earned in connection with 67 structured security transactions with an average fee of $18,000 for fiscal 2012 as compared to 125 structured security transactions with an average fee of $36,000 for fiscal 2011;

• a $125,000 net decrease in earnings from four unconsolidated CLO issuers invested in bank loans we previously sponsored and manage, primarily due to the sale of CLO equity in March 2011, partially offset by two fiscal 2012 CLO equity purchases;

• a $2.0 million net increase in realized and unrealized gains, and interest recorded on trading securities purchased during fiscal 2012; and

• a $781,000 increase in our share of realized and unrealized fair value adjustments recorded relative to our limited and general partner interests held in unconsolidated company-sponsored partnerships, the value of which depends on market conditions and may vary significantly year to year.

Costs and Expenses − Fiscal 2012 Compared to Fiscal 2011

Costs and expenses of our financial fund management operations decreased $3.5 million (17%) in fiscal 2012. General and administrative expenses decreased by $6.0 million principally due to a $4.0 million decrease in compensation in corresponding with the reduced number of employees in connection with the sale of Apidos and a $1.7 million decrease in commissions on structured security transactions. Other expenses increased $2.5 million due to increased wages and benefits related to a profit-sharing arrangement with certain employees in connection with the portfolio management activities conducted on behalf of RSO.

Revenues − Fiscal 2011 Compared to Fiscal 2010

Revenues decreased $7.3 million (22%) to $25.8 million in fiscal 2011 from $33.1 million in fiscal 2010.  We attribute the decrease to the following:

• an $818,000 decrease in fund management fees, principally from the following:

• a $2.3 million decrease in collateral management fees from Resource Europe CLO I, or REM I.  In December 2010, we sold the management contract of this CLO issuer and transferred all collateral management rights and responsibilities to an unaffiliated third-party.  As a result of this transaction, we no longer record any fees from REM I;

• a $316,000 decrease in collateral management fees from our Ischus operations primarily as a result of rating agency downgrades which had the effect of reducing the eligible collateral base upon which our management fees are calculated;

• a $122,000 decrease in management and incentive fees earned on separate managed accounts.  We earned management and incentive fees of $393,000 and $515,000 for fiscal 2011 and 2010, respectively.  Fees earned in fiscal 2010 include $484,000 of management and incentive fees earned on a separate account we no longer manage; and

• a $113,000 decrease in base management fees from our Trapeza operations, primarily as a result of portfolio defaults which reduced the eligible collateral base upon which our management fees are calculated.

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These decreases were partially offset by:

• a $788,000 increase in collateral management fees earned in connection with a services agreement.  In February 2011, we entered into a services agreement with RSO to provide subadvisory collateral management and administrative services for five CLO issuers invested in bank loans;

• a $678,000 increase in management fees earned for the a non-public credit opportunities fund we manage, primarily from a $475,000 increase in incentive fees earned based on exceeding certain investor return hurdles;

• a $297,000 increase in advisory fees earned in connection with a consulting agreement.  In September 2010, we entered into a consulting agreement with a third-party to provide advisory services for a CDO issuer;

• a $241,000 decrease in our share of expenses for the management of TCM and Trapeza Management Group, LLC, primarily due to a decrease in legal fees, which increased the net fees we received;

• a $2.0 million increase in RSO management fees primarily due to an increase in incentive management fees.  Incentive management fees for fiscal 2011 included a $2.9 million fee earned by Resource Capital Markets for managing a trading portfolio on behalf of RSO as compared to $438,000 in fiscal 2010.  This increase was partially offset by a $772,000 decrease in incentive management fees earned by our Apidos operations during fiscal 2011;

• a $3.2 million decrease in introductory agent fees as a result of fees earned in connection with 125 structured security transactions with an average fee of $36,000 for fiscal 2011 as compared to 103 structured security transactions with an average fee of $75,000 for fiscal 2010;

• a $1.2 million net decrease in earnings from five unconsolidated CLO issuers invested in bank loans we previously sponsored and manage.  In March 2010, we sold one of our CLO equity investments and in June 2010, we sold the majority of our interest in another CLO equity investment;

• an $860,000 decrease in interest income on loans due to the recovery of excess interest spread earned on loan assets accumulating during the warehouse period of the European CLO issuer we previously managed;

• an $831,000 decrease in other income, primarily related to an $800,000 break-up fee received in connection with an unsuccessful bank transaction to reimburse us in fiscal 2010 for expenses related to the transaction.  We did not receive any such fee in fiscal 2011 nor do we anticipate receiving such fees in the future; and

• a $2.5 million decrease in adjustments recorded relative to our limited and general partner interests:

• during fiscal 2010, we (along with the co-manager of the general partners), repurchased substantially all the remaining limited partner interests in two Trapeza partnerships that reduced our clawback liability for which we recorded a gain of $2.3 million.  There were no repurchases in fiscal 2011; and

• during fiscal 2011 and 2010, we recorded ($2,000) and $229,000, respectively, in realized and unrealized fair value adjustments in the book value of securities we held in unconsolidated other company-sponsored partnerships.

Costs and Expenses − Fiscal 2011 Compared to Fiscal 2010

Costs and expenses of our financial fund management operations decreased $466,000 (2%) in fiscal 2011.  This decrease was principally due to a $1.9 million decrease in commissions on structured security transactions, a $1.2 million decrease in legal and consulting fees and a $200,000 decrease in equity-based compensation expense on previously awarded RSO restricted stock and options.  The decrease in legal and consulting fees relates to an unsuccessful bank transaction that occurred in fiscal 2010; no such fees were incurred in fiscal 2011.  These decreases were partially offset by a $2.9 million increase in wages and benefits, primarily related to a $2.5 million increase in a profit-sharing arrangement with certain employees in connection with the portfolio management activities conducted by Resource Capital Markets on behalf of RSO, and a $316,000 severance charge related to our European operations in connection with the sale of the management contract of REM I.

Results of Operations:  Commercial Finance

As previously discussed in Item 1; “Business-General,” and in “-Overview,” above, in January 2011 we contributed the leasing origination and servicing platform of LEAF Financial to LEAF to facilitate outside investment in our commercial finance business. RSO also contributed assets and cash to LEAF, and Guggenheim Securities LLC, or Guggenheim, provided a credit facility for use in LEAF's originations. LEAF Financial retained the management of four equipment leasing partnerships, for which LEAF will be the sub-servicer. Because we controlled LEAF, its results are included in our financial statements for fiscal 2011 and we discuss those results in this section. However, as a result of the November 2011 LEAF Transaction, we determined that we no longer control LEAF and, accordingly, it was deconsolidated from our financial statements during fiscal 2012, with our retained interest being accounted for on the equity method of accounting.

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The commercial finance assets we manage through LEAF, our unconsolidated joint venture, decreased by $65.0 million to $520.0 million as compared to $585.0 million at September 30, 2011. This decrease reflects a $211.0 million reduction in assets we managed for our four investment entities due to the natural runoff of the lease portfolios, which was partially offset by a $146.0 million increase in the LEAF portfolio. As of September 30, 2012, LEAF managed approximately 57,000 leases and loans for itself and our investment entities, with an average original finance value of $25,000 and an average term of 58 months, as compared to approximately 62,000 leases and loans with an average original finance value of $26,000 and an average term of 58 months as of September 30, 2011.

The following table sets forth information related to commercial finance assets managed by us and our unconsolidated joint venture ⁽¹⁾ (in millions):

	September 30,
	2012		2011
LEAF	$	342	$	196
Commercial finance investment entities	178		389
	$	520	$	585

(1) For information on how we calculate assets under management, see Item 1, “Business − “Assets under Management.”

We consolidated the operating results of LEAF through November 16, 2011 and have recorded our equity interest in the losses of LEAF for the remainder of fiscal 2012. We continue to consolidate the operating results of LEAF Financial. Commencing in the third quarter of fiscal 2010 and thereafter, we have waived our management fees from our commercial finance investment partnerships. The following table sets forth certain information relating to the revenues recognized and costs and expenses incurred in our commercial finance operations (in thousands):    

	Fiscal Years Ended September 30,
	2012			2011			2010
Revenues:(1)
Finance revenues and management fees:
Finance revenues	$	3,767		$	18,897		$	10,662
Fund management fees	—			505			10,905
Acquisition fees	—			—			1,327
Other:
Equity in losses of LEAF	(1,726		)	—			—
Equity in losses of investment entities	(525		)	(665		)	(1,896		)
Other fees	368			3,058			2,679
	$	1,884		$	21,795		$	23,677
Costs and expenses:
General and administrative expenses - wages and benefit costs	$	2,043		$	11,880		$	9,245
General and administrative expenses - other	1,023			5,986			8,919
Less: deferred initial direct costs and fees	(652		)	(2,659		)	—
	$	2,414		$	15,207		$	18,164

(1) Total revenues include RSO servicing and origination fees of $0, $144,000 and $444,000 for fiscal 2012, 2011 and 2010, respectively.

Revenues & Expenses − Fiscal 2012 Compared to Fiscal 2011

Due to the deconsolidation of LEAF, we ceased to reflect LEAF's revenues and expenses after November 2011 with our consolidated results. Instead, we record our interests in LEAF's operations on the equity method of accounting. During fiscal 2012, our share of LEAF's losses have reduced our investment to zero such that we will not reflect any future losses of LEAF. However, we will continue to record our share of any charges that may be recorded in LEAF's accumulated other comprehensive income relating to its hedging activities.

Commencing December 1, 2010, we agreed to waive all future management fees from our commercial finance investment partnerships due to their reduced equity distributions as a result of the impact of the recession on their respective cash flows. Accordingly, we waived $4.7 million and $8.1 million of fund management fees from these entities during fiscal 2012 and 2011, respectively.

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Revenues − Fiscal 2011 Compared to Fiscal 2010

Revenues decreased $1.9 million (8%) to $21.8 million for fiscal 2011 as compared $23.7 million for fiscal 2010.  We attribute these decreases primarily to the following:

• a $10.4 million decrease in management fees.  In fiscal 2010, we began waiving certain management fees from our commercial finance investment partnerships due to their reduced equity distributions as a result of the impact of the recession on their respective cash flows.  In fiscal 2011, we waived $8.1 million of these fees as compared to $3.8 million in fiscal 2010; and

• a $1.3 million decrease in asset acquisition fees.  The difficulty in obtaining and maintaining debt financing by the investment funds we manage coupled with certain of those funds entering maturity phases has limited their ability to acquire equipment financings from us.  Consequently, we reduced our commercial finance originations to match their asset acquisition capabilities.

These decreases were partially offset by the following:

•  an $8.2 million increase in finance revenues due to the $180.0 million increase in the portfolio of assets held for our own account, reflecting the contribution of the RSO portfolio to LEAF in January 2011 in addition to our ongoing lease and loan originations;

• a $1.2 million decrease in equity losses on unconsolidated partnerships, reflecting a decrease in the provision for credit losses by our investment partnerships and a non-recurring gain on the extinguishment of debt; and

• a $379,000 increase in other income, primarily due to an increase in the insurance fees we generated.

Costs and Expenses − Fiscal 2011 Compared to Fiscal 2010

Costs and expenses from our commercial finance operations decreased by $3.0 million (16%) in fiscal 2011 compared to fiscal 2010.  We attribute this decrease primarily to the following:

• a $2.9 million reduction in other costs and expenses, primarily legal fees to service our smaller portfolio of assets, as well as our ongoing cost saving and consolidation efforts which targeted eliminating overhead redundancies and increasing operating efficiencies; and

• a $2.7 million increase in the capitalization of deferred initial direct costs, or IDC.  In fiscal 2010 and 2009, we originated and sold the leases and notes to our investment partnerships. Accordingly, we netted the IDC capitalization of $1.8 million and $6.3 million, respectively, against the corresponding acquisition fees we recorded from the partnerships at the time of sale to the investment partnerships. In fiscal 2011, we have maintained the commercial assets we acquired on our balance sheet and, therefore, have reflected the capitalization of IDC costs separately as a reduction of our general and administrative expenses.

These decreases were partially offset by the following:

• a $2.6 million increase in wage and benefit costs, primarily driven by a reduction in the amount of costs and that we could allocate to our managed investment partnerships. 

Results of Operations:  Other Costs and Expenses

General and Administrative Expenses

Fiscal 2012 Compared to Fiscal 2011. General and administrative costs were $10.5 million in fiscal 2012, a decrease of $1.1 million (9%) as compared to $11.5 million in fiscal 2011. We reduced our professional fees, primarily legal and accounting services, by $659,000 and wages and benefits decreased by $498,000.

Fiscal 2011 Compared to Fiscal 2010. General and administrative costs were $11.5 million in fiscal 2011, a decrease of $1.5 million (11%) as compared to $13.0 million in fiscal 2010. Wages and benefits decreased by $766,000, principally reflecting an $869,000 decrease in equity-based compensation expense.

Restructuring Expenses

We recorded a $365,000 charge for restructuring during fiscal 2012 consisting of severance and benefits for terminated employees. The decrease in staffing levels reflects our decreased overhead requirements as a result of the sale of Apidos and the recapitalization of LEAF. 

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Gain (Loss) on the Sale of Leases and Loans

During fiscal 2012, we recorded a gain on the sale of leases and loans of $37,000 prior to the deconsolidation of LEAF, as compared to gains of $659,000 for fiscal 2011 and a loss of $8.1 million for fiscal 2010. During fiscal 2010, availability on the warehouse facility for our commercial finance operations declined and the facility was terminated in May 2010. Due to the lack of other available financing during fiscal 2010, loans and leases were sold to third-parties, as well as to RSO, at a loss.

Impairment charges

During fiscal 2012, based on an internal assessment of fair value, we determined that a legacy real estate investment was impaired and, accordingly, recorded a non-cash charge of $2.2 million. In addition, during fiscal 2012, we impaired a legacy loan by $89,000 and in November 2012, the property underlying the loan was sold at its approximate book value. In fiscal 2010, we fully impaired a commercial finance customer related intangible asset and recorded a $2.8 million charge.

Provision for Credit Losses

The provisions for credit losses recorded in fiscal 2012, 2011 and 2010 reflect the weakness in the United States economy and the write-offs and writedowns of assets affected by that weakness. The following table sets forth our provision for credit losses as reported by segment (in thousands):

	Fiscal Years Ended September 30,
	2012		2011		2010
Commercial finance:
Receivables from managed entities	$	16,766	$	7,237	$	1,852
Leases, loans and future payment card receivables	138		1,231		3,307
Real estate:
Receivables from managed entities	324		2,178		—
Rent receivables	18		15		—
Investment in loans	—		—		49
Financial fund management - investment in loans	—		—		1
	$	17,246	$	10,661	$	5,209

We have estimated, based on projected cash flows, that three of the commercial finance funds and two of the real estate partnerships that we sponsored and managed will not have sufficient funds to pay a portion of their accrued management fees and, accordingly, we recorded provisions of $17.1 million and $9.4 million for fiscal 2012 and 2011, respectively. This increase was offset, in part, by the $1.1 million reduction in the provision for commercial finance leases and loans held for investment due to the deconsolidation of LEAF in November 2011.

Depreciation and Amortization

Fiscal 2012 Compared to Fiscal 2011. Due to the November 2011 deconsolidation of LEAF, depreciation expense decreased by $7.1 million for fiscal 2012 as compared to fiscal 2011. The following table reflects the depreciation reported by LEAF as compared to our other operating segments (in thousands):

	Fiscal Years Ended September 30,
	2012		2011		2010
LEAF	$	1,556	$	8,766	$	5,693
Other operating segments	2,097		1,973		2,149
Total depreciation expense	$	3,653	$	10,739	$	7,842

Other operating segment depreciation is comprised of $1.0 million of depreciation on our real estate investment consolidated property investments for fiscal 2012 and 2011, respectively, and $1.1 million and $950,000 depreciation on property and equipment for fiscal 2012 and 2011, respectively.

Fiscal 2011 Compared to Fiscal 2010. Depreciation and amortization expense was $10.7 million in fiscal 2011, an increase of $2.9 million (37%) as compared to $7.8 million in fiscal 2010. The increase relates primarily to the $4.3 million of additional depreciation expense on the additional $25.1 million of operating leases we held by LEAF during fiscal 2011. The increase was offset, in part, by an $809,000 decrease in the amortization of commercial finance customer lists, which were deemed to be fully impaired during fiscal 2010.

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Interest Expense

Interest expense includes the non-cash amortization of debt issuance costs (and the acceleration of those costs for credit facilities which were significantly amended or terminated prior to their stated maturity), as well as discounts related to the following: (a) the value of the warrants we issued to holders of our Senior Notes, (b) the LEAF warrants issued in connection with its credit facility, and (c) LEAF's securitized borrowings and the corresponding issuance of equipment-backed notes. We recorded interest expense for LEAF for the period prior to its deconsolidation in November 2011 (see Note 1 of the notes to our restated consolidated financial statements in Item 8 of this report). The following table reflects interest expense as reported by segment (in thousands):

	Fiscal Years Ended September 30,
	2012		2011		2010
Commercial finance	$	1,749	$	8,563	$	6,271
Corporate	2,136		5,671		5,738
Real estate	856		1,109		1,074
Financial fund management	—		—		3
	$	4,741	$	15,343	$	13,086

Facility utilization and issuance of Senior Notes (in millions) and corresponding interest rates on borrowings outstanding were as follows: 

	Fiscal Years Ended September 30,
	2012	2011	2010
Corporate facilities
Secured credit facilities and term note:
Average borrowings	$3.9	$11.8	$18.2
Average interest rates	6.0%	6.5%	7.4%
Senior Notes:(1)
Average borrowings	$11.4	$18.8	$18.8
Average interest rates	9.8%	12.0%	12.0%
Commercial finance (transferred and/or terminated facilities) (2)
Secured credit facilities:
Average borrowings	$68.8	$40.4	$77.0
Average interest rates	4.2%	4.1%	5.0%
Term securitizations:
Average borrowings	$112.8	$62.5	$—
Average interest rates	4.2%	5.4%	—%
Short-term bridge facility:
Average borrowings	$—	$8.8	$1.6
Average interest rates	—%	6.8%	4.0%

(1) In November 2011, we refinanced the Senior Notes through a partial redemption and modification, which reduced the principal balance outstanding from $18.8 million to $10.0 million and reduced the interest rate from 12% to 9%.

(2) The amounts presented for commercial finance for fiscal 2012 reflect activity during the period from October 1 to November 16, 2011. Subsequently, these facilities have been deconsolidated from our restated consolidated financial statements.

Fiscal 2012 Compared to Fiscal 2011. As a result of the deconsolidation of LEAF and a reduction in both corporate borrowings and the average interest rate on those borrowings, interest expense for fiscal 2012 decreased by $10.6 million to $4.7 million from $15.3 million for fiscal 2011.

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Fiscal 2011 Compared to Fiscal 2010.  Interest expense incurred by our commercial finance operations increased by $2.3 million (37%) primarily due to the $33.1 million increase in weighted average borrowings as compared to fiscal 2010.  In the January 2011 LEAF transaction, we consolidated $96.1 million of equipment-backed notes, net of a discount, and obtained a $110.0 million revolving credit facility with Guggenheim, replacing the $21.8 million of short-term bridge financing.

Gain on the Deconsolidation and Sale of Subsidiaries

Gain on Deconsolidation of LEAF. In November 2011, we obtained an additional investment in LEAF by a third-party private investment firm. Accordingly, we determined that we no longer control LEAF and, effective with that investment, we have deconsolidated it for financial reporting purposes. As a result of that transaction, our equity interest in LEAF is 14.9% on a fully diluted basis. We recorded a $7.0 million gain to bring the value of our negative investment in LEAF to zero. In addition, based on a third-party valuation, our investment in LEAF was valued at $1.7 million. The valuation utilized several approaches, including discounted expected cash flows, market approach and comparable sales transactions to estimate the fair value of our investment in LEAF as a result of the transaction. These approaches required assumptions and estimates of many critical factors, including revenue and market growth, operating cash flows, market multiples, and discount rates, which were based on the current economic environment and credit market conditions. Accordingly, we recorded a total gain of $8.7 million in conjunction with the deconsolidation of LEAF.

Gain on Sale of Apidos. On April 17, 2012, we completed the sale of our common equity interests in Apidos to CVC and recorded a net gain on the sale of $54.5 million. Our investment in CVC Credit Partners was valued at $28.6 million based on a third-party valuation. The valuation utilized several approaches, including the implied transaction, dividend discount model, discounted cash flow analysis, and guideline public company. These approaches required assumptions and estimates of many critical factors, including revenue and market growth, operating cash flows, market multiples, and discount rates, which were based on the current economic environment and credit market conditions. Through our retained preferred interest, which we valued at $6.8 million, we are also entitled to receive incentive management fees from the legacy Apidos portfolios.

Loss on Extinguishment of Debt

In September and October 2009, we issued $18.8 million of Senior Notes along with detachable 5-year warrants to purchase common stock. The proceeds from the Senior Notes were allocated to the notes and the warrants based on their relative fair values. The fair value of the warrants was recorded as a discount to the notes and was amortized over the 3-year term of the Senior Notes using the effective interest method. In November 2011, we refinanced the Senior Notes through a partial redemption and modification. Due to the modification, we expensed the remaining $2.2 million discount related to the warrant fair value.

Gain on Sale of Management Contract

In December 2010, we sold the management contract of Resource Europe CLO I, or REM I, for a gain of $6.5 million.

Net Other-than-Temporary Impairment Charges on Investment Securities

In fiscal 2012, we recorded a $74,000 other-than-temporary impairment charge for one of our CLO investments which primarily invested in bank loans. We did not record any other-than-temporary impairment charges during fiscal 2011. In connection with the volatility in the global credit markets and reduction in liquidity affecting banks, thrifts, other financial institutions, as well as direct and indirect real estate investments, we incurred other-than-temporary impairment charges with respect to CLO securities in fiscal 2010 of $183,000 related to bank loans ($166,000 for European loans) and a $297,000 charge related to CDO investments in the securities of financial institutions. Additionally, in fiscal 2010, we recorded a $329,000 other-than-temporary impairment loss on our investment in the common stock of The Bancorp, Inc, or TBBK, held in a retirement account for our former chief executive officer due to the decision to sell these securities during fiscal 2011 to fund the account.

Gain (loss) on Sale of Loans and Investment Securities, Net

During fiscal 2012, we sold 33,509 shares of TBBK common stock and recognized a gain $22,000.

During fiscal 2011, we received proceeds of $2.9 million from the first quarter sale of our equity investment in REM I and recognized a $1.5 million loss on the sale. This loss was offset, in part, by a gain of $186,000 from the sale of 90,210 shares of TBBK common stock we held.

In June 2010, we received proceeds of $1.2 million from the sale of our equity investment in Apidos CLO II and recognized a loss on the sale of $27,000. In March 2010, we received $1.5 million in proceeds from the sale of our equity investment in Apidos CLO V and realized a loss of $424,000.

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Net (Income) Loss Attributable to Noncontrolling Interests

We record third-party interests in our earnings as amounts allocable to noncontrolling interests.  Subsequent to the deconsolidation of LEAF in November 2011, we no longer record commercial finance non-controlling interests.  The following table sets forth the net (income) loss attributable to noncontrolling interests (in thousands):

	Fiscal Years Ended September 30,
	2012			2011			2010
	(restated)			(restated)
Noncontrolling interests attributable to RSO (1)	$	(62,520	)	$	(36,283	)	$	—
Other:
Commercial finance -stock-based compensation, net of tax of $0, $949, $1,699 (2)	$	218		$	2,059		$	3,155
Real estate - outside interest in our hotel property (3)	5			52			61
Other partnership interests (4)	—			—			8
	$	223		$	2,111		$	3,224

(1) Our rights and benefits of RSO are limited to the management compensation and expense reimbursements we receive and our risks associated with being an investor of RSO which is limited to our ownership position. The remaining difference of RSO's net income (loss) is attributed to noncontrolling interests - RSO.

(2) Senior executives of LEAF held a 14.1% interest in LEAF Financial as of September 30, 2010 and 2009. In January 2011, these shares were exchanged for a 21.98% interest in LEAF (10% on a fully diluted basis). As a result of the deconsolidation of LEAF, we no longer record this noncontrolling interest.

(3) A related party holds a 19.99% interest in our investment in a hotel property in Savannah, Georgia.

(4) Limited partners, excluding us, owned 85% and 64% limited partner interests in SFF I and SFF II, respectively, which invested in the equity of certain of the CDO issuers we sponsored. As of March 31, 2010, these partnerships have been dissolved.

Income Taxes

The following table details the allocation of our consolidated provision (benefit) for income taxes from continuing operations between RAI and RSO:

	Fiscal Years Ended September 30,
	2012		2011			2010
RAI	$	13,512	$	(4,607	)	$	(2,650	)
RSO	14,602		12,036			—
Total	$	28,114	$	7,429		$	(2,650	)

The following paragraphs discuss the income tax, exclusive of the income tax provision for our consolidated VIE - RSO.

Fiscal 2012 Compared to Fiscal 2011. Our effective income tax rate (income taxes as a percentage of income from continuing operations, before taxes) was a provision of 34% for fiscal 2012 as compared to a benefit of 47% for fiscal 2011. The change in the income tax rate primarily relates to the lesser impact of permanent items relative to the pre-tax income for fiscal 2012.  Our effective income tax rate without discrete tax items would have been 40% for fiscal 2012.

We project our effective tax rate to be between 37% and 40% for fiscal 2013. This rate can vary from period to period depending on, among other factors, the geographic and business mix of our earnings and the level of our tax credits. We take certain of these and other factors, including our history of pretax earnings, into account in assessing our ability to realize our net deferred tax assets.

We are subject to examination by the U.S. Internal Revenue Service, or IRS, and other taxing authorities in certain states in which we have significant business operations. We are currently undergoing a New York State examination for fiscal 2007 - 2009.  We are no longer subject to U.S. federal income tax examinations for fiscal years before 2009 and are no longer subject to state and local income tax examinations by tax authorities for fiscal years before 2006.

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Fiscal 2011 Compared to Fiscal 2010.Our effective income tax rate (income taxes as a percentage of income from continuing operations before taxes) was a benefit of 47% for fiscal 2011 as compared to 13% for fiscal 2010.  The increase in the income tax benefit and accordingly, the effective tax rate, relates primarily to the lesser impact of permanent items relative to the pre-tax loss for fiscal 2011. In addition, the effective income tax rate for fiscal 2010 was much lower than fiscal 2011 due to one-time deferred tax adjustments, which decreased the fiscal 2010 tax rate. Our effective income tax rate, as adjusted to exclude adjustments primarily related to discrete items, would have been 35% for fiscal 2011.

Discontinued Operations

     In connection with the sale of a real estate loan in March 2006, we agreed that in exchange for the property owner relinquishing certain control rights, we would make payments to the owner under stipulated circumstances. On April 7, 2011, we were formally notified that a trigger event had occurred on March 17, 2011 and, accordingly, we accrued the present value of the payout due under the agreement in the amount of $3.4 million, which was reflected in fiscal 2011 as a $2.2 million loss, net of tax, from discontinued operations in the consolidated statements of operations. Discontinued operations in fiscal 2012 represent the accretion of the liability.

Income from discontinued operations for fiscal 2010 primarily reflect the reversal of $626,000 of interest and penalty assessments related to prior year IRS tax examinations, which related to the disallowance of bad debt deductions taken on properties held by our real estate operations that were subsequently disposed of and the deductions were realized.

Summarized operating results of discontinued operations are as follows (in thousands):

	Fiscal Years Ending September 30,
	2012			2011			2010
(Loss) income from discontinued operations before taxes	$	(90	)	$	(3,387	)	$	622
Benefit for income taxes	32			1,185			—
(Loss) income from discontinued operations, net of tax	$	(58	)	$	(2,202	)	$	622

Results of Operations:  RSO

RSO, which we consolidate as a VIE, is a diversified real estate finance company that is organized and conducts its operations to qualify as a real estate investment trust, or REIT, for federal income tax purposes under Subchapter M of the Internal Revenue Code of 1986, as amended. RSO's investment strategy focuses on commercial real estate and commercial real estate-related assets and, to a lesser extent, commercial finance assets. RSO invests in the following asset classes: commercial real estate-related assets such as commercial real estate property, whole loans, A-notes, B-notes, mezzanine loans, commercial mortgage-backed securities and investments in real estate joint ventures as well as commercial finance assets such as bank loans, lease receivables and other asset-backed securities, trust preferred securities, debt tranches of collateralized debt obligations, structured note investments and private equity investment principally issued by financial institutions. RSO has financed a substantial portion of its portfolio investments through borrowing strategies seeking to match the maturities and repricing dates of its financings with the maturities and repricing dates of those investments, and has sought to mitigate interest rate risk through derivative instruments.

The following summarizes the operating activities of RSO for the years ended December 31, 2012 and 2011 (in thousands):

	Years Ended December 31,
	2012		2011
Total interest income	$	133,330	$	109,874
Interest expense	42,792		32,186
Net interest income	90,538		77,688
Other revenues	33,160		18,298
Total revenue	123,698		95,986
Operating expenses	78,452		62,139
Net operating income	45,246		33,847
Other revenue	19,197		3,869
Net income	$	64,443	$	37,716

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Liquidity and Capital Resources

Our analysis of liquidity and capital reserves excludes the liquidity of our consolidated VIE, RSO, as we do not have access or the ability to utilize any of RSO's assets nor do we have any obligation or recourse with respect to any of its liabilities or borrowings.

As an asset management company, our liquidity needs consist principally of capital needed to make investments and to pay our operating expenses (principally wages and benefits and interest expense). Our ability to meet our liquidity needs will be subject to our ability to generate cash from operations, and, with respect to our investments, our ability to raise investor funds and

At September 30, 2012, our liquidity consisted of four primary sources:

• cash on hand of $19.4 million;

• $10.5 million of availability under our two corporate credit facilities;

• potential disposition of non-core assets; and

• cash generated from operations.

Our consolidated balance sheet liquidity has improved as of September 30, 2012 due principally to the disposition of non-core assets and the refinancing and repayment of our debt. We also completed the recapitalization of LEAF, including the $50.0 million growth equity investment by a third-party private investment firm. The resulting deconsolidation of LEAF eliminated $202.5 million of borrowings from our balance sheet. In April 2012, in connection with the sale of our equity interests in Apidos, we received $25.0 million in cash before costs and expenses, as well as a 33% continuing interest in the newly-formed joint venture.

Disposition of Non-core Assets. Our legacy portfolio at September 30, 2012 consisted of one loan and five property interests. In November 2012, the property underlying the loan was sold at its approximate book value.

To the extent we are able to dispose of these assets, we will obtain additional liquidity. The amount of additional liquidity we obtain will vary significantly depending upon the asset being sold and then-current economic conditions. We cannot assure you that any dispositions will occur or as to the timing or amounts we may realize from any such dispositions.

Refinancing and Repayment of Our Debt. In addition to the elimination of LEAF's debt on deconsolidation, we repaid $8.7 million of outstanding borrowings under the TD Bank facility. In November 2011, we redeemed $8.8 million of our Senior Notes and modified the remaining $10.0 million of notes to reduce the interest rate to 9% and extend the maturity to October 2013. In October and November 2012, we amended our Republic and TD Bank facilities, respectively, to extend the maturities of these facilities to December 2014.

As of September 30, 2012, our total borrowings outstanding of $21.3 million included $10.0 million of Senior Notes, $10.5 million of mortgage debt (secured by the underlying property) and $812,000 of other debt.

Capital Requirements

Our capital needs consist principally of funds to make investments in the investment vehicles we sponsor or for our own account and to provide bridge financing or other temporary financial support to facilitate asset acquisitions by our sponsored investment vehicles. Accordingly, the amount of capital we require will depend to a significant extent upon our level of activity in making investments for our own account or in sponsoring investment vehicles, all of which is largely within our discretion.

Dividends

We used cash reserves to fund our dividends during periods in which our cash flows from operations were insufficient.

For fiscal 2012, 2011 and 2010, we paid cash dividends of $2.3 million, $2.2 million and $1.6 million, respectively. We have paid quarterly cash dividends since August 1995.

Our Senior Notes limited the amount of cash dividends to $0.03 per share unless our basic earnings per common share from continuing operations from the preceding fiscal quarter exceeds $0.25 per share. In September 2013, we obtained approval from the holders of the Senior Notes to remove all limitations on our ability to declare and pay quarterly cash dividends. The determination of the amount of future cash dividends, if any, is at the discretion of our board of directors and will depend on the various factors affecting our financial condition and other matters the board of directors deems relevant.

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Contractual Obligations and Other Commercial Commitments

Our analysis of contractual obligations and other commitments excludes the obligations and commitments of our consolidated VIE, RSO, as we do not have any obligation or recourse with respect to any of its liabilities or borrowings.

The following tables summarize our contractual obligations and other commercial commitments at September 30, 2012 (in thousands):

			Payments Due By Period
	Total		Less than 1 Year		1 – 3  Years		4 – 5 Years		After 5 Years
	(restated)		(restated)		(restated)		(restated)		(restated)
Contractual obligations:
Non-recourse to the Company:
Mortgage - hotel property (1)	$	10,531	$	182	$	401	$	454	$	9,494
Recourse to the Company:
Other debt (1)	10,487		487		10,000		—		—
Capital lease obligations (1)	325		235		90		—		—
	10,812		722		10,090		—		—
Operating lease obligations	17,440		1,802		4,043		4,058		7,537
Other long-term liabilities	9,247		1,840		1,609		1,486		4,312
Total contractual obligations	$	48,030	$	4,546	$	16,143	$	5,998	$	21,343

(1) Not included in the table above are estimated interest payments calculated at rates in effect at September 30, 2012; less than 1 year: $1.6 million; 1-3 years:  $1.4 million; 4-5 years:  $1.3 million; and after 5 years:  $2.3 million.

			Amount of Commitment Expiration Per Period
	Total		Less than 1 Year		1 – 3 Years		4 – 5 Years		After 5 Years
Other commercial commitments:
Guarantees	$	—	$	—	$	—	$	—	$	—
Real estate commitments	1,355		1,355		—		—		—
Standby letters of credit	803		803		—		—		—
Total commercial commitments	$	2,158	$	2,158	$	—	$	—	$	—

LEAF Valuation Commitment. In accordance with the November 2011 recapitalization of LEAF, we along with RSO have jointly undertaken a contingent obligation with respect to the equity value of the entity that holds the portfolio of equipment, equipment leases and notes that RSO contributed to LEAF. To the extent that equity falls below $18.7 million (the balance as of the contribution date) as of the final testing date within 90 days after December 31, 2013, we and RSO have agreed to be jointly and severally obligated to contribute cash to LEAF to cover the shortfall.

Limited Loan Guarantee. We and two of our commercial finance fund partnerships, Lease Equity Appreciation Fund I, L.P., or LEAF I, and Lease Equity Appreciation Fund II, L.P., or LEAF II, have provided a limited guarantee to a lender to the partnerships in exchange for a waiver of any existing defaulted loan covenants and certain future financial covenants. The loans mature at the earlier of (a) the maturity date (March 20, 2014 for the LEAF I loan and December 21, 2013 for the LEAF II loan), or (b) the date on which an event of default under the loan agreement occurs. The maximum guarantee provided by us is up to $7.3 million ($2.3 million for LEAF I and $5.0 million for LEAF II). If we were required to make any such payments under the guarantee in the future, we would have the option to either step in as the lender or otherwise make a capital contribution to the LEAF partnerships for the amount of the required guarantee payment. Under certain circumstances, the lender will also discount their loans by approximately $250,000 for LEAF I and $347,500 for LEAF II. Management has determined that based on projected cash flows from the underlying lease and loan portfolios collateralizing the loans, there should be sufficient funds to repay the LEAF partnerships' outstanding loan balances and, accordingly, we have not recorded any future liability under this guarantee.

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Broker-Dealer Capital Requirement.Resource Securities, our wholly-owned subsidiary, is a registered broker-dealer and serves as a dealer-manager for the sale of securities of direct participation investment programs, both public and private, sponsored by our subsidiaries who also serve as general partners and/or managers of these programs. Additionally, Resource Securities serves as an introducing agent for transactions involving sales of securities of financial services companies, REITs and insurance companies and for us and RSO.  As a broker-dealer, Resource Securities is required to maintain minimum net capital, as defined in regulations under the Securities Exchange Act of 1934, as amended, which was $100,000 as of September 30, 2012 and 2011.  As of September 30, 2012 and 2011, Resource Securities net capital was $447,000 and $254,000, respectively, which exceeded the minimum requirements by $347,000 and $154,000, respectively.

Clawback Liability.Two financial fund management investment entities that have incentive distributions, also known as carried interests, are structured so that there is a “clawback” of previously paid incentive distributions to the extent that such distributions exceed the cumulative net profits of the entities, as defined in the respective partnership agreements.  On November 1, 2009 and January 28, 2010, we, along with the co-manager of the general partner of those investment entities, repurchased substantially all the remaining limited partnership interests in these two partnerships, significantly reducing our potential clawback liability. The clawback liability we recorded was $1.2 million at September 30, 2012 and 2011.

Legal Proceedings. See Item 3, “Legal Proceedings.”

Real Estate Commitments. As a specialized asset manager, we sponsor investment funds in which we may make an equity investment along with outside investors. This equity investment is generally based on a percentage of funds raised and varies among investment programs. With respect to RRE Opportunity REIT, we have committed to invest 1% of the equity raised to a maximum amount of $2.5 million. This commitment has been reduced to $1.1 million as of September 30, 2012 for funds already invested to date.

In July 2011, we entered into an agreement with one of the tenant-in-common programs we sponsored and manage. This agreement requires us to fund up to $1.9 million, principally for capital improvements, for the underlying property over the next two years. We had advanced funds totaling $1.7 million as of September 30, 2012.

The liabilities for the real estate commitments will be recorded in the future as the amounts become due and payable.

General Corporate Commitments. We are also a party to employment agreements with certain executives that provide for compensation and other benefits, including severance payments under specified circumstances.

As of September 30, 2012, except for the clawback liability recorded for the two Trapeza entities, real estate commitments, and executive compensation, we do not believe it is probable that any payments will be required under any of our commitments and contingencies, and accordingly, no liabilities for these obligations have been recorded in the restated consolidated financial statements.

Variable Interest Entities

In general, a VIE is an entity that does not have sufficient equity to finance its operations without additional subordinated financial support, or an entity for which the risks and rewards of ownership are not directly linked to voting interests. We have variable interests in VIEs through our management contracts and investments in various securitization entities, including CDO issuers. Since we serve as the asset manager for the investment entities we sponsored and manage, we are generally deemed to have the power to direct the activities of the VIE that most significantly impact the entity's economic performance. In the case of an interest in a VIE managed by us, we will perform an additional qualitative analysis to determine if our interest (including any investment as well as any management fees that qualify as variable interests) could absorb losses or receive benefits that could potentially be significant to the VIE. This analysis considers the most optimistic and pessimistic scenarios of potential economic results that could reasonably be experienced by the VIE. Then, we compare the benefits we would receive (in the optimistic scenario) or the losses we would absorb (in the pessimistic scenario) as compared to benefits and losses absorbed by the VIE in total. If the benefits or losses absorbed by us were significant as compared to total benefits and losses absorbed by all variable interest holders, then we would conclude that we are the primary beneficiary.

The financial statements for September 30, 2012 and 2011 have been restated to reflect the consolidation of RSO. Also as of September 30, 2012 and 2011, we had one real estate VIE in which we held a mezzanine loan that we consolidated. The property underlying this loan was subsequently sold in November 2012 and the loan was resolved. See Note 26 for additional disclosures pertaining to VIEs.

44

Our investment in RRE Opportunity REIT, and our investments in the structured finance entities that hold investments in trust preferred assets, which we refer to as our Trapeza entities, and asset-backed securities, which we refer to as our Ischus entities, were all determined to be VIEs that we do not consolidate as we do not have the obligation of, or right to, losses or earnings that would be significant to those entities.  With respect to RRE Opportunity REIT, we have advanced offering costs that are being reimbursed as the REIT raises additional equity.  Except for those advances, we have not provided financial or other support to these VIEs and have no liabilities, contingent liabilities, or guarantees (implicit or explicit) related to these VIEs at September 30, 2012.

Critical Accounting Policies

     The discussion and analysis of our financial condition and results of operations are based upon our restated consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of our assets, liabilities, revenues, costs and expenses, and related disclosure of contingent assets and liabilities. We make estimates of our allowance for credit losses, the valuation allowance against our deferred tax assets, discounts and collectability of management fees, the valuation of stock-based compensation, and in determining whether a decrease in the fair value of an investment is an other-than-temporary impairment. The financial fund management segment makes assumptions in determining the fair value of our investments in securities and in estimating the liability, if any, for clawback provisions on certain of our partnership interests. We used assumptions, specifically inputs to the Black-Scholes pricing model and the discounted cash flow model, in computing the fair value of the Senior Notes and related warrants. On an on-going basis, we evaluate our estimates, which are based on historical experience and on various other assumptions that we believe reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

We have identified the following policies as critical to our business operations and the understanding of our results of operations.

Stock-Based Compensation

We value the restricted stock we issue based on the closing price of our stock on the date of grant. For stock option awards, we determine the fair value by applying the Black-Scholes pricing model. These equity awards are amortized to compensation expense over the respective vesting periods, less an estimate for forfeitures.

Receivables from Managed Entities

We perform a review of the collectability of our receivables from managed entities on a quarterly basis. If upon review there is an indication of impairment, we will analyze the expected future cash flows of the managed entity. With respect to receivables from our commercial finance investment partnerships, the analysis takes into consideration several assumptions by management, primarily concerning estimates of future bad debts and recoveries. For receivables from the real estate investment entities for which there are indications of impairment, we estimate the cash flows through the sale of the underlying properties, which is based on projected net operating income as a multiple of published capitalization rates, which is then reduced by the underlying mortgage balances and priority distributions due to the investors in the entity. We will record an allowance against the related receivable from managed entities to the extent that the estimated cash flows are insufficient to fully recover our receivable balance.

Investment Securities

Our investment securities available-for-sale, including investments in the CLO issuers we sponsored, are carried at fair value. The fair value of the CLO investments is based primarily on internally-generated expected cash flow models that require significant management judgment and estimates due to the lack of market activity and the use of unobservable pricing inputs. Investments in affiliated entities, including holdings in TBBK, are valued at the closing price of the respective publicly-traded stock. The fair value of the cumulative net unrealized gains and losses on these investment securities, net of tax, is reported through accumulated other comprehensive income and loss. Realized gains and losses on the sale of investments are determined on the trade date on the basis of specific identification and are included in net operating results.

We recognize a realized loss when it is probable there has been an adverse change in estimated cash flows from those previously estimated. The security is then written down to fair value, and the unrealized loss is transferred from accumulated other comprehensive loss to the consolidated statements of operations as a charge to current earnings. The cost basis adjustment for an other-than-temporary impairment would be recoverable only upon the sale or maturity of the security.

45

Periodically, we review the carrying value of our available-for-sale securities. If we deem an unrealized loss to be other-than-temporary, we will record an impairment charge. Our process for identifying an other-than-temporary decline in the fair value of our investments involves consideration of (i) the duration of a significant decline in value, (ii) the liquidity, business prospects and overall financial condition of the issuer, (iii) the magnitude of the decline, (iv) the collateral structure and other credit support, as applicable, and (v) the more-than-likely intention to hold the investment until the value recovers. When the analysis of the above factors results in a conclusion that a decline in fair value is other-than-temporary, we record an impairment charge and the cost of our investment is written down to fair value.

We purchased investment securities classified as trading during fiscal 2012. Trading securities are recorded at fair value with unrealized holding gains and losses included in earnings and reported in revenue. We utilize trade date accounting to record the purchases and sales of trading securities. The cost of a security is determined using the specific identification method. Earnings from trading securities, primarily are reported net, and are comprised of realized and unrealized gains and losses from sales of trading securities, mark to market adjustments to fair value, gains and losses related to foreign currency commissions from riskless principal trades, as well as any gains and losses from other security transactions. To determine fair value, we use third-party dealer quotes or bids and recent transactions. In fiscal 2011, we held shares of TBBK common stock in a benefit plan for a former executive. The shares, classified as trading, were valued at the closing price of the stock and unrealized gains and losses were included in other income.

We recognize dividend income on our investment securities classified as available-for-sale on the ex-dividend date.

Investments in Unconsolidated Loan Manager

Our interest in CVC Credit Partners and our preferred equity interest in Apidos-CVC is included in Investments in Unconsolidated Loan Manager on the consolidated balance sheets. We account for our investment in CVC Credit Partners based on the equity method since we have the ability to exercise significant influence over the partnership.

We account for our preferred equity interest in Apidos-CVC on the cost method. As the incentive fees underlying the preferred equity are received, 75% will be distributed to us which will initially be credited to income net of any contractual amounts due to third-parties. On a quarterly basis, we evaluate the investment for impairment by estimating the fair value of the expected future discounted cash flows from the incentive management fees. If the estimated fair value is less than the cost basis of the preferred shares, the preferred equity interest will be deemed to be impaired. Then, if we determine that the shortfall is other-than-temporary, the impairment will be recorded as a reduction of the preferred equity interest by reducing the revenues previously recorded on the preferred shares. To the extent the investment in preferred equity has been reduced to zero, all subsequent cash receipts will be recorded as income as received.

Accounting for Income Taxes

The objectives of accounting for income taxes are to recognize the amount of taxes payable or refundable for the current year and to recognize deferred tax liabilities and assets for the future tax consequences of events that have been recognized in the our restated consolidated financial statements or tax returns.

We adjust the balance of our deferred taxes to reflect the tax rates at which future taxable amounts will likely be settled or realized. The effects of tax rate changes on deferred tax liabilities and deferred tax assets, as well as other changes in income tax laws, are recognized in net earnings in the period during which such changes are enacted. Valuation allowances are established and adjusted, when necessary, to reduce deferred tax assets to the amounts expected to be realized. We assess our ability to realize deferred tax assets primarily based on tax planning strategies.

A tax position should only be recognized if it is more likely than not that the position will be sustained upon examination by the appropriate taxing authority.  A tax position that meets this threshold is measured as the largest amount of benefit that is greater than 0 percent likely of being realized upon ultimate settlement.  We classify any tax penalties as general and administrative expenses and any interest as interest expense. We do not have any unrecognized tax benefits that would affect the effective tax rate.

46

Recent Accounting Standards

Newly-Adopted Accounting Principle

Comprehensive Income (Loss). In June 2011, the FASB issued an amendment to eliminate the option to present components of other comprehensive income (loss) as part of the statement of changes in stockholders' equity. The amendment requires that all non-owner changes in stockholders' equity be presented either in a single continuous statement of comprehensive income (loss) or in two separate but consecutive statements. In the two-statement approach, the first statement should present total net income (loss) and its components followed consecutively by a second statement that should present total other comprehensive income (loss), the components of other comprehensive income (loss), and the total of comprehensive income (loss). We early adopted this disclosure requirement and have included the Statements of Comprehensive Income (Loss).

Fair Value Measurements. In May 2011, the FASB issued an amendment to revise the wording used to describe the requirements for measuring fair value and for disclosing information about fair value measurements. For many of the requirements, the FASB does not intend for the amendments to result in a change in the application of the current requirements. Some of the amendments clarify the FASB's intent about the application of existing fair value measurement requirements, such as specifying that the concepts of highest and best use and valuation premise in a fair value measurement are relevant only when measuring the fair value of nonfinancial assets. Other amendments change a particular principle or requirement for measuring fair value or for disclosing information about fair value measurements such as specifying that, in the absence of a Level 1 input, a reporting entity should apply premiums or discounts when market participants would do so when pricing the asset or liability. This guidance became effective for us beginning January 1, 2012 and, accordingly, we have presented the required disclosures.

ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Interest Rate Risk

We are exposed to various market risks from changes in interest rates. Fluctuations in interest rates can impact our results of operations, cash flows and financial position. We manage this risk through regular operating and financing activities. The analysis below presents the sensitivity of the market value of our financial instruments to selected changes in market interest rates. The range of changes presented reflects our view of changes that are reasonably possible over a one-year period and provides indicators of how we view and manage our ongoing market risk exposures. Our analysis does not consider other possible effects that could impact our business.

Debt

At September 30, 2012, we had two secured revolving credit facilities and one term loan for general business use. Weighted average borrowings on these facilities were $3.9 million for fiscal 2012 at an effective interest rate of 6.0% on outstanding borrowings. A hypothetical 10% change in the interest rate on these facilities would change our annual interest expense by $22,000.

All other debt as of September 30, 2012 are at fixed rates of interest and are, therefore, not subject to interest rate fluctuation.

Trading Securities

Our trading security investments are a source of market risk. As of September 30, 2012, our trading security portfolio was comprised of $3.1 million of investments in equity and debt securities. Trading securities are recorded at fair value and changes in the fair value are included in operations. Assuming an immediate 10% decrease in the market value of these investments as of September 30, 2012, the hypothetical loss would have been approximately $306,000.

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ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]

48

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Stockholders and Board of Directors

RESOURCE AMERICA, INC.

We have audited the accompanying consolidated balance sheets of Resource America, Inc.(a Delaware corporation) and subsidiaries (the “Company”) as of September 30, 2012 and 2011, and the related consolidated statements of operations, comprehensive income, changes in equity, and cash flows for each of the three years in the period ended September 30, 2012. Our audits of the basic consolidated financial statements included the financial statement schedules listed in the index appearing under Item 15. These financial statements and financial statement schedules are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and financial statement schedules based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Resource America, Inc. and subsidiaries as of September 30, 2012 and 2011, and the results of their operations and their cash flows for each of the three years in the period ended September 30, 2012 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the related financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.

As discussed in Note 2 to the consolidated financial statements, the Company has restated its consolidated financial statements as of September 30, 2012 and 2011 and for each of the two years in the period ended September 30, 2012 to correct an error.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of September 30, 2012, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated November 22, 2013 expressed an adverse opinion.

/s/ GRANT THORNTON LLP

Philadelphia, Pennsylvania

November 22, 2013

49

RESOURCE AMERICA, INC

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

	September 30,
	2012			2011
	(Restated)			(Restated)
ASSETS
Cash	$	19,393		$	24,455
Restricted cash	642			20,257
Receivables	3,554			1,981
Receivables from managed entities and related parties, net	34,418			52,117
Investments in commercial finance, net	—			192,012
Investments in real estate, net	19,149			19,942
Investment securities, at fair value	7,030			2,732
Investments in unconsolidated loan manager (see Notes 1 and 9)	36,356			—
Investments in unconsolidated entities	12,993			12,710
Assets of consolidated variable interest entities ("VIE") - RSO (see Note 26):
Cash and cash equivalents (including restricted cash)	179,390			185,922
Investments, at fair value	256,433			179,539
Loans	1,849,321			1,776,109
Investments in real estate and consolidated entities	120,706			60,056
Other assets - RSO	70,600			35,609
Total assets of consolidated VIE - RSO	2,476,450			2,237,235
Property and equipment, net	2,732			6,998
Deferred tax assets, net	27,770			43,915
Goodwill	—			7,969
Other assets	3,776			14,662
Total assets	$	2,644,263		$	2,636,985
LIABILITIES AND EQUITY
Liabilities:
Accrued expenses and other liabilities	$	23,042		$	40,887
Payables to managed entities and related parties	4,349			1,010
Borrowings	21,343			214,054
Liabilities of consolidated VIE - RSO (see Note 26):
Borrowings	1,785,600			1,794,083
Other liabilities	72,673			58,253
Total liabilities of consolidated VIE - RSO	1,858,273			1,852,336
Total liabilities	1,907,007			2,108,287
Commitments and contingencies
Equity:
Preferred stock, $1.00 par value, 1,000,000 shares authorized; none outstanding	—			—
Common stock, $.01 par value, 49,000,000 shares authorized; 29,866,664 and 28,779,998 shares issued (including nonvested restricted stock of 403,195 and 649,007), respectively	294			281
Additional paid-in capital	285,844			281,686
Accumulated deficit	(25,857		)	(49,054		)
Treasury stock, at cost; 9,756,955 and 9,126,966 shares, respectively	(102,457		)	(98,954		)
Accumulated other comprehensive loss	(2,226		)	(2,369		)
Total stockholders’ equity	155,598			131,590
Noncontrolling interests	208			(1,269		)
Noncontrolling interest attributable to RSO	581,450			398,377
Total equity	737,256			528,698
	$	2,644,263		$	2,636,985

The accompanying notes are an integral part of these statements

50

RESOURCE AMERICA, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

	Fiscal Years Ended September 30,
	2012			2011			2010
	(Restated)			(Restated)
REVENUES:
Real estate (includes revenues of $10,667 and $6,968 related to RSO)	$	40,595		$	38,380		$	31,911
Financial fund management (includes revenues of $7,424 and $5,536 related to RSO)	21,957			25,841			33,140
Commercial finance (includes revenues of $0 and $144 related to RSO)	1,884			21,795			23,677
	64,436			86,016			88,728
Revenues from consolidated VIE - RSO (see Note 26)	123,698			95,986			—
Elimination of consolidated VIE revenues attributed to operating segments	(17,234		)	(15,070		)	—
Total revenues	170,900			166,932			88,728
COSTS AND EXPENSES:
Real estate	29,669			24,465			20,780
Financial fund management	17,086			20,562			21,028
Commercial finance	2,414			15,207			18,164
Restructuring expenses	365			—			—
General and administrative	10,460			11,522			12,972
(Gain) loss on sale of leases and loans	(37		)	(659		)	8,097
Impairment charges	2,280			—			2,828
Provision for credit losses	17,246			10,661			5,209
Depreciation and amortization	3,653			10,739			7,842
	83,136			92,497			96,920
Expenses from consolidated VIE - RSO (see Note 26)	63,850			50,103			—
Elimination of consolidated VIE expenses attributed to operating segments	(16,360		)	(11,061		)	—
Total expenses	130,626			131,539			96,920
OPERATING INCOME (LOSS)	40,274			35,393			(8,192		)
OTHER INCOME (EXPENSE):
Gain on deconsolidation and sale of subsidiaries	63,291			—			—
Loss on extinguishment of debt	(2,190		)	—			—
Gain on sale of management contract	—			6,520			—
Gain (loss) on sale of investment securities, net	63			(1,198		)	(451		)
Other-than-temporary impairment on investments	(74		)	—			(809		)
Interest expense	(4,741		)	(15,343		)	(13,086		)
Other (expense) income, net	(71		)	(213		)	2,591
Other income, net, from consolidated VIE - RSO (see Note 26)	19,197			3,869			—
Elimination of consolidated VIE other income attributed to operating segments	227			212			—
	75,702			(6,153		)	(11,755		)
Income (loss) from continuing operations before taxes	115,976			29,240			(19,947		)
Income tax provision - RSO	14,602			12,036			—
Income tax provision (benefit) - RAI	13,512			(4,607		)	(2,650		)
Income (loss) from continuing operations	87,862			21,811			(17,297		)
(Loss) income from discontinued operations, net of tax	(58		)	(2,202		)	622
Net income (loss)	87,804			19,609			(16,675		)
Net loss attributable to noncontrolling interests	223			2,111			3,224
Net income attributable to noncontrolling interests - RSO	(62,520		)	(36,283		)	—
Net income (loss) attributable to common shareholders	$	25,507		$	(14,563	)	$	(13,451	)
Amounts attributable to common shareholders:
Income (loss) from continuing operations	$	25,565		$	(12,361	)	$	(14,073	)
Discontinued operations	(58		)	(2,202		)	622
Net income (loss)	$	25,507		$	(14,563	)	$	(13,451	)

The accompanying notes are an integral part of these statements

51

RESOURCE AMERICA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS - (Continued)
(in thousands, except per share data)
	Fiscal Years Ended September 30,
	2012		2011			2010
	(Restated)		(Restated)
Basic earnings (loss) per share:
Continuing operations	$	1.29	$	(0.64	)	$	(0.74	)
Discontinued operations	—		(0.11		)	0.03
Net income (loss)	$	1.29	$	(0.75	)	$	(0.71	)
Weighted average shares outstanding	19,740		19,525			18,942
Diluted earnings (loss) per share:
Continuing operations	$	1.24	$	(0.64	)	$	(0.74	)
Discontinued operations	—		(0.11		)	0.03
Net income (loss)	$	1.24	$	(0.75	)	$	(0.71	)
Weighted average shares outstanding	20,634		19,525			18,942

The accompanying notes are an integral part of these statements

52

RESOURCE AMERICA, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

YEARS ENDED SEPTEMBER 30, 2012, 2011 AND 2010

(in thousands)

	Attributable to Common Shareholders
	Common Stock		Additional Paid-In Capital			Accumulated Deficit			Treasury Stock			Accumulated Other Comprehensive (Loss) Income			Total Stockholders’ Equity			Noncontrolling Interests			Noncontrolling interests RSO			Total Equity
						(Restated)						(Restated)			(Restated)			(Restated)						(Restated)
Balance, October 1, 2009	$	272	$	277,944		$	(22,471	)	$	(100,367	)	$	(15,560	)	$	139,818		$	323		$	—		$	140,141
Net loss	—		—			(13,451		)	—			—			(13,451		)	(3,224		)	—			(16,675		)
Issuance of common shares	2		56			—			—			—			58			—			—			58
Treasury shares issued	—		(655		)	—			1,037			—			382			—			—			382
Stock-based compensation	—		226			—			—			—			226			—			—			226
Restricted stock awards	—		2,765			—			—			—			2,765			46			—			2,811
Issuance of warrants in Senior Notes offering	—		1,042			—			—			—			1,042			—			—			1,042
Cash dividends	—		—			(1,636		)	—			—			(1,636		)	—			—			(1,636		)
Other	—		—			—			—			—			—			7			—			7
Other comprehensive income (loss)	—		—			—			—			2,753			2,753			(25		)	—			2,728
Balance, October 1, 2010	274		281,378			(37,558		)	(99,330		)	(12,807		)	131,957			(2,873		)	—			129,084
Restatement adjustments	—		—			5,313			—			10,208			15,521			—			316,588			332,109
Balance, October 1, 2010 (Restated)	274		281,378			(32,245		)	(99,330		)	(2,599		)	147,478			(2,873		)	316,588			461,193
Net loss	—		—			(14,563		)	—			—			(14,563		)	(2,111		)	36,283			19,609
Issuance of common shares	7		1,907			—			—			—			1,914			—			—			1,914
Treasury shares issued	—		(320		)	—			617			—			297			—			—			297
Stock-based compensation	—		2,188			—			—			—			2,188			40			—			2,228
Repurchase of common stock	—		—			—			(241		)	—			(241		)	—			—			(241		)
Cash dividends	—		—			(2,246		)	—			—			(2,246		)	—			—			(2,246		)
Change in non controlling interests in consolidated VIE - RSO	—		—			—			—			—			—			—			57,915			57,915
Noncontrolling interests related to LEAF	—		(3,467		)	—			—			—			(3,467		)	3,699			—			232
Other comprehensive loss	—		—			—			—			230			230			(24		)	(12,409		)	(12,203		)
Balance, October 1, 2011	281		281,686			(49,054		)	(98,954		)	(2,369		)	131,590			(1,269		)	398,377			528,698
Net income	—		—			25,507			—			—			25,507			(223		)	62,520			87,804
Issuance of common shares	13		3,830			—			—			—			3,843			—			—			3,843
Treasury shares issued	—		(249		)	—			539			—			290			—			—			290
Stock-based compensation	—		1,286			—			—			—			1,286			—			—			1,286
Repurchases of common stock	—		—			—			(4,042		)	—			(4,042		)	—			—			(4,042		)
Cash dividends	—		—			(2,310		)	—			—			(2,310		)	—			—			(2,310		)
Change in non controlling interests in consolidated VIE - RSO	—		—			—			—			—			—			—			101,304			101,304
Other	—		—			—			—			—			—			3			—			3
Deconsolidation of LEAF (see Note 1)	—		(709		)	—			—			—			(709		)	1,648			—			939
Other comprehensive income	—		—			—			—			143			143			49			19,249			19,441
Balance, September 30, 2012	$	294	$	285,844		$	(25,857	)	$	(102,457	)	$	(2,226	)	$	155,598		$	208		$	581,450		$	737,256

The accompanying notes are an integral part of these statements

53

RESOURCE AMERICA, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in thousands, except per share data)

	Fiscal Years Ended September 30,
	2012			2011			2010
	(Restated)			(Restated)
Net income (loss)	$	87,804		$	19,609		$	(16,675	)
Other comprehensive income (loss):
Unrealized gain (loss) on investment securities available-for-sale, net of tax of $(17), $(326) and $1,481	(28		)	(528		)	2,160
Less: reclassification for losses realized, net of tax of $28, $566 and $568	45			904			870
	17			376			3,030
Minimum pension liability adjustments, net of tax of $(221), $(432) and $(223)	(289		)	(632		)	(257		)
Less:  reclassification for losses realized, net of tax of $164 ,$129 and $116	215			169			147
	(74		)	(463		)	(110		)
Unrealized gain (loss) on hedging contracts, net of tax of $13, $(58) and $109	(6		)	(75		)	192
Deconsolidation of LEAF- unrealized loss on hedging contracts, net of tax of $174	255			—			—
	249			(75		)	192
Foreign currency translation gain (loss)	—			368			(384		)
Subtotal - activity related to RAI:	192			206			2,728
Activity related to consolidated VIE - RSO:
Unrealized gains (losses) on available for sale securities, net	18,770			(13,798		)	—
Reclassification adjustment for gains included in net income	1,728			1,080			—
Unrealized (losses) gains on derivatives, net	(1,476		)	82			—
Reclassification adjustments associated with unrealized losses from interest rate hedges included in net income	227			227			—
Subtotal - activity related to RSO:	19,249			(12,409		)	—
Subtotal- other comprehensive income (loss)	19,441			(12,203		)	2,728
Comprehensive income (loss)	107,245			7,406			(13,947		)
Comprehensive (income) loss attributable to noncontrolling interests	(81,595		)	(21,739		)	3,249
Comprehensive income (loss) attributable to common shareholders	$	25,650		$	(14,333	)	$	(10,698	)

The accompanying notes are an integral part of these statements

54

RESOURCE AMERICA, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

	Fiscal Years Ended September 30,
	2012			2011			2010
	(Restated)			(Restated)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	87,804		$	19,609		$	(16,675	)
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:
Depreciation and amortization	4,875			15,868			12,088
Impairment charges	2,280			—			2,828
Provision for credit losses	17,246			11,460			5,209
Unrealized gain on trading securities	(1,108		)	—			—
Equity in earnings of unconsolidated entities	(3,439		)	(10,377		)	(4,870		)
Distributions from unconsolidated entities	3,463			4,522			5,104
(Gain) loss on sale of leases and loans	(37		)	(659		)	8,097
Other-than-temporary impairment on investments	74			—			809
(Gain) loss on sale of loans and investment securities, net	(972		)	1,198			451
Gain on sale of assets	(84		)	(196		)	(2,870		)
Gain on sale and deconsolidation of subsidiaries	(63,291		)	—			—
Loss on extinguishment of debt	2,190			—			—
Gain on sale of management contract	—			(6,520		)	—
Deferred income tax provision (benefit)	13,393			(5,657		)	(4,564		)
Equity-based compensation issued	1,286			2,525			3,573
Equity-based compensation received	—			—			(1,441		)
Trading securities purchases and sales, net	(1,048		)	—			—
Decrease in commercial finance investments	—			—			17,603
Loss (income) from discontinued operations	58			2,202			(622		)
Changes in operating assets and liabilities	(2,911		)	(2,624		)	1,719
Change in cash attributable to operations of consolidated VIE - RSO	(65,226		)	(16,165		)	—
Net cash (used in) provided by operating activities	(5,447		)	15,186			26,439
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures	(222		)	(1,165		)	(782		)
Payments received on real estate loans and real estate	1,726			16,487			9,205
Investments in unconsolidated real estate entities	(1,608		)	(2,371		)	(1,821		)
Purchase of commercial finance assets	(18,483		)	(105,777		)	(11,771		)
Principal payments received on leases and loans	9,043			29,056			—
Purchase of loans and securities by consolidated VIE - RSO	(769,762		)	(1,072,132		)	—
Principal payments and proceeds from sales received by consolidated VIE - RSO	822,476			663,663			—
Cash divested on deconsolidation of LEAF	(2,284		)	—			—
Net proceeds from sale of Apidos and cash divested on deconsolidation	17,860			—			—
Proceeds from sale of management contract	—			9,095			—
Purchase of loans and investments	(1,874		)	—			(1,445		)
Proceeds from sale of loans and investments	262			3,779			4,094
Increase in restricted cash of consolidated VIE - RSO	50,756			31,014			—
Other investing activity of consolidated VIE	(1,925		)	(45,533		)	—
Net cash provided by (used in) in investing activities	105,965			(473,884		)	(2,520		)

The accompanying notes are an integral part of these statements

55

RESOURCE AMERICA, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS - (Continued) (in thousands)
	Fiscal Years Ended September 30,
	2012			2011			2010
	(Restated)			(Restated)
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in borrowings	128,845			106,043			103,401
Principal payments on borrowings	(129,416		)	(55,778		)	(128,767		)
Net (repayments) borrowings of debt by consolidated VIE - RSO	(207,149		)	358,029			—
Dividends paid	(2,310		)	(2,246		)	(1,636		)
Dividends paid on common stock by consolidated VIE - RSO	(71,876		)	(67,414		)	—
Proceeds from issuance of common stock	2,131			1,914			58
Net proceeds from issuance of common stock by consolidated VIE - RSO	171,056			129,911			—
Repurchase of common stock	(2,324		)	(241		)	—
(Increase) decrease in restricted cash	(664		)	4,530			(9,277		)
Other	(2,275		)	(2,299		)	(2,652		)
Other financing activity of consolidated VIE - RSO	9,687			729			—
Net cash (used in) provided by financing activities	(104,295		)	473,178			(38,873		)
CASH FLOWS FROM DISCONTINUED OPERATIONS:
Operating activities	(1,285		)	(1,268		)	—
Net cash used in discontinued operations	(1,285		)	(1,268		)	—
(Decrease) increase in cash	(5,062		)	13,212			(14,954		)
Cash, beginning of year	24,455			11,243			26,197
Cash, end of year	$	19,393		$	24,455		$	11,243

The accompanying notes are an integral part of these statements

56

RESOURCE AMERICA, INC.

NOTES TO RESTATED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2012

NOTE 1 - NATURE OF OPERATIONS

Resource America, Inc. (the "Company") (NASDAQ: REXI) is a specialized asset management company that uses industry specific expertise to evaluate, originate, service and manage investment opportunities through its real estate, financial fund management, and commercial finance operating segments. As a specialized asset manager, the Company seeks to develop investment funds for outside investors for which the Company provides asset management services, typically under long-term management and operating arrangements either through a contract with, or as the manager or general partner of, the sponsored fund. The Company limits its investment funds to investment areas where it owns existing operating companies or has specific expertise. The Company manages assets on behalf of institutional and individual investors and Resource Capital Corp. (“RSO”) (NYSE: RSO), a diversified real estate finance company that qualifies as a real estate investment trust (“REIT”). RSO has been reflected on a consolidated basis with our financial statements for the fiscal years ended September 30, 2011 and 2012 on a calendar year basis for both years (see Notes 2 and 26).

All references to “fiscal”, unless otherwise noted, refer to the Company's fiscal year, which ends on September 30. For example, a reference to “fiscal 2012” means the 12-month period that ended on September 30, 2012. All references to quarters, unless otherwise noted, refer to the quarters of the Company's fiscal year.

The Company conducts real estate operations through the following subsidiaries:

• Resource Capital Partners, Inc. acts as the general partner for most of the Company's real estate investment entities and provides asset management services to the entire portfolio;

• Resource Real Estate Management, Inc. (“Resource Residential”) provides property management services to the entire multifamily apartment portfolio, including fund assets, distressed assets and joint venture assets;

• Resource Real Estate Funding, Inc., on behalf of RSO, manages the commercial real estate debt portfolio comprised principally of A notes, whole mortgage loans, mortgage participations, B notes, mezzanine debt and related commercial real estate securities. In addition, it manages a separate portfolio of discounted real estate and real estate loans; and

• Resource Real Estate, Inc. manages loans, owned assets and ventures, which are collectively referred to as the “legacy portfolio.”

The Company conducts its financial fund management operations primarily through the following six operating entities:

• CVC Credit Partners, L.P. ("CVC Credit Partners"), a joint venture between the Company and an unrelated third-party, finances, structures and manages investments in bank loans, high yield bonds and equity investments through issuers of collateralized loan obligations (“CLOs”), managed accounts and a credit opportunities fund. Prior to April 17, 2012, the Company conducted these operations through Apidos Capital Management, LLC. ("Apidos") and subsequent to the formation of the joint venture, this entity is referred to as Apidos-CVC;

• Trapeza Capital Management, LLC (“TCM”), a joint venture between the Company with an unrelated third-party, originates, structures, finances and manages investments in trust preferred securities and senior debt securities of banks, bank holding companies, insurance companies and other financial companies through collateralized debt obligations ("CDOs") issuers and related partnerships. TCM together with the Trapeza CDO issuers and Trapeza partnerships, are collectively referred to as Trapeza;

• Resource Financial Institutions Group, Inc. (“RFIG”), serves as the general partner for seven company-sponsored affiliated partnerships which invest in financial institutions;

• Ischus Capital Management, LLC (“Ischus”), finances, structures and manages investments in asset-backed securities (“ABS”) including residential mortgage-backed securities (“RMBS”) and commercial mortgage-backed securities (“CMBS”);

• Resource Capital Markets, Inc., through the Company's registered broker-dealer subsidiary, Resource Securities, Inc. (formerly Chadwick Securities, Inc., or “Resource Securities”), acts as an agent in the primary and secondary markets for structured finance securities and manages accounts for institutional investors; and

• Resource Capital Manager, Inc. (“RCM”), an indirect wholly-owned subsidiary, provides investment management and administrative services to RSO under a management agreement between RCM and RSO.

The Company conducts its commercial finance operations through LEAF Commercial Capital, Inc. (“LEAF”) and LEAF Financial Corporation (“LEAF Financial”). LEAF Financial sponsored and manages four publicly-held investment entities as the general and limited partner or managing member and originated and acts as the servicer of the leases and loans sold to those entities.

57

RESOURCE AMERICA, INC.

NOTES TO RESTATED CONSOLIDATED FINANCIAL STATEMENTS − (Continued)

SEPTEMBER 30, 2012

LEAF. In January 2011, the Company formed LEAF to conduct its equipment lease origination and servicing operations and to obtain outside equity and debt financing sources. LEAF Financial retained the management of the four equipment leasing partnerships, which are sub-serviced by LEAF. On November 16, 2011, the Company and LEAF, together with RSO, entered into a stock purchase agreement and related agreements (collectively the “November 2011 LEAF Transaction”) with Eos Partners, L.P., a private investment firm, and its affiliates (“Eos”). Pursuant to the November 2011 LEAF Transaction, Eos invested $50.0 million in cash in LEAF in exchange for 50,000 shares of newly-issued 12% Series A Participating Preferred Stock (the “Series A Preferred Stock”) and warrants to purchase 2,954 shares of LEAF common stock for an exercise price of $0.01 per share, collectively representing, on a fully-diluted basis, a 45.1% interest in LEAF. In exchange for its prior interest in LEAF, RSO received 31,341 shares of Series A Preferred Stock, 4,872 shares of newly-issued 8% Series B Redeemable Preferred Stock and 2,364 shares of newly-issued Series D Redeemable Preferred Stock, collectively representing, on a fully-diluted basis, a 26.7% interest in LEAF. The Company retained 18,414 shares of LEAF common stock, representing a fully-diluted interest of 15.7%, and senior management of LEAF maintained a 10% fully-diluted interest. Additional warrants were provided to LEAF's lender in accordance with a financing agreement, which reduced the Company's investment to 14.9% on a fully-diluted basis. As a result of the November 2011 LEAF Transaction, the Company deconsolidated LEAF (see Note 4) and has accounted for its investment in LEAF on the equity method beginning on November 17, 2011. In conjunction with the transaction and resulting deconsolidation of LEAF, the Company recorded a gain of $8.7 million.

Apidos. On April 17, 2012, the Company sold all of its common equity interests in Apidos to CVC Capital Partners SICAV-FIS, S.A., a private equity firm (“CVC”). Pursuant to the sale and purchase agreement and related agreements between the Company and CVC dated as of December 29, 2011, the Company sold Apidos in exchange for (i) $25.0 million in cash, (ii) a 33% limited partner interest in CVC Credit Partners, a Cayman Islands limited partnership jointly owned by the Company and CVC, and (iii) a 33% interest in CVC Credit Partners' general partner, a Jersey corporation.  Prior to the closing, CVC contributed its credit management subsidiary to CVC Credit Partners. The Company also retained a preferred equity interest in Apidos-CVC, which entitles it to receive distributions from CVC Credit Partners equal to 75% of the incentive management fees from the legacy Apidos portfolios. The Company recorded a $54.5 million net gain on the sale of Apidos, including the investments in CVC Credit Partners and Apidos-CVC preferred equity at their fair value totaling $34.8 million. At September 30, 2012, these investments were reflected as Investments in Unconsolidated Loan Manager on the consolidated balance sheets.

NOTE 2 - RESTATEMENT OF CONSOLIDATED FINANCIAL STATEMENTS FOR THE FISCAL YEARS

ENDED AND AS OF SEPTEMBER 30, 2012 and 2011

On September 19, 2013, the Audit Committee of the Board of Directors of Resource America, Inc. (the “Company”) concluded that it was necessary to restate the audited financial statements set forth in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2012 and the unaudited financial statements in its Quarterly Reports on Form 10-Q for each of the quarters ended December 31, 2012, March 31, 2013 and June 30, 2013 (collectively, the “Financial Statements”) to consolidate Resource Capital Corp. (“RSO”). The Company owned 2.65% and 3.24% of outstanding RSO common stock as of September 30, 2012 and 2011, respectively.

Impact related to the consolidation of differing periods. The restated consolidating financial statements that follow reflect the consolidation of the Company’s net assets and results of its operations as of and for the fiscal year ended September 30, 2012 and 2011 with that of RSO as of and for the calendar year ended December 31, 2012 and 2011. This is the only filing by the Company that reflects the consolidation of RAI and RSO on non-conforming periods; all future filings of the Company will reflect the consolidation for conformed periods. The impact of consolidating the mismatched periods to the Company’s net income attributable to common shareholders was an adjustment of $(2.6) million and $747,000, respectively, for the fiscal years ended September 30, 2012 and 2011. These differences are primarily due to the following (in thousands):

• total revenues were adjusted by $(385,000) and $295,000, respectively, reflecting $(502,000) and $502,000, respectively, of preferred stock dividends and interest income reflected by RSO from LEAF Commercial Capital, Inc. (“LEAF”) offset, in part, by $211,000 and $(214,000), respectively, of management fees from RSO to the Company for managing a portfolio of collateralized debt obligations (“CLOs”) on behalf of RSO; and

• total expenses were adjusted by $2.2 million and $452,000, respectively, primarily reflecting the base and incentive management fees from RSO to the Company. The incentive management fees are based on the adjusted operating earnings of RSO and, accordingly, will vary by quarter.

58

RESOURCE AMERICA, INC.

NOTES TO RESTATED CONSOLIDATED FINANCIAL STATEMENTS − (Continued)

SEPTEMBER 30, 2012

Impact of the RSO consolidation on income attributable to common shareholders. The overall impact of consolidating RSO for the fiscal years ended September 30, 2012 and 2011 is summarized as follows (in thousands):

• a decrease of $2.2 million and $2.5 million, respectively, related to the elimination of dividends recorded by the Company on its investment in RSO common stock;

• an increase of $1.8 million and $1.4 million, respectively, reflecting the Company's interest in the earnings of RSO, net of the portion attributable to noncontrolling interests; and

• As previously filed for the fiscal year ended September 30, 2011, the Company had reflected a gain of $4.4 million on the reversal of a service liability recorded by LEAF on the sale of a commercial lease portfolio to RSO. In the recapitalization of LEAF, this portfolio was contributed by RSO back to LEAF and the liability was extinguished. In addition, there was a $799,000 adjustment to the provision for credit losses on this portfolio that was eliminated in the RSO consolidation.

59

RESOURCE AMERICA, INC.

NOTES TO RESTATED CONSOLIDATED FINANCIAL STATEMENTS − (Continued)

SEPTEMBER 30, 2012

The following sets forth the effect of the restatement on the applicable line items in the Company’s consolidated balance sheet for the fiscal year ended September 30, 2012, which incorporates RSO as of December 31, 2012 (in thousands):

				Restatement Adjustments
	As Previously Reported			RSO		Eliminations			As Restated
ASSETS
Cash	$	19,393		$	—	$	—		$	19,393
Restricted cash	642			—		—			642
Receivables	3,554			—		—			3,554
Receivables from managed entities and related parties, net	41,051			—		(6,633		)	34,418
Investments in real estate, net	19,149			—					19,149
Investment securities, at fair value	22,532			—		(15,502		)	7,030
Investments in unconsolidated loan manager (see Notes 1 and 9)	36,356			—					36,356
Investments in unconsolidated entities	12,993			—					12,993
Assets of consolidated variable interest entities ("VIE") - RSO:
Cash and cash equivalents (including restricted cash)	—			179,390		—			179,390
Investments, at fair value	—			256,433		—			256,433
Loans	—			1,850,998		(1,677		)	1,849,321
Investments in real estate and consolidated entities	—			120,799		(93		)	120,706
Other assets - RSO	—			70,631		(31		)	70,600
Total assets of consolidated VIE - RSO	—			2,478,251		(1,801		)	2,476,450
Property and equipment, net	2,732			—		—			2,732
Deferred tax assets, net	34,565			—		(6,795		)	27,770
Other assets	3,776			—					3,776
Total assets	$	196,743		$	2,478,251	$	(30,731	)	$	2,644,263
LIABILITIES AND EQUITY
Liabilities:
Accrued expenses and other liabilities	$	23,042		$	—	$	—		$	23,042
Payables to managed entities and related parties	4,380			—		(31		)	4,349
Borrowings	23,020			—		(1,677		)	21,343
Liabilities of consolidated VIE - RSO:
Borrowings	—			1,785,600		—			1,785,600
Other liabilities	—			79,306		(6,633		)	72,673
Total liabilities	50,442			1,864,906		(8,341		)	1,907,007
Commitments and contingencies
Equity:
Preferred stock	—			—		—			—
Common stock	294			—		—			294
Additional paid-in capital	285,844			—		—			285,844
Accumulated deficit	(24,508		)	—		(1,349		)	(25,857		)
Treasury stock, at cost	(102,457		)	—		—			(102,457		)
Accumulated other comprehensive loss	(13,080		)	—		10,854			(2,226		)
Total stockholders’ equity	146,093			—		9,505			155,598
Noncontrolling interests	208			—		—			208
Noncontrolling interest attributable to RSO	—			613,345		(31,895		)	581,450
Total equity	146,301			613,345		(22,390		)	737,256
	$	196,743		$	2,478,251	$	(30,731	)	$	2,644,263

60

RESOURCE AMERICA, INC.

NOTES TO RESTATED CONSOLIDATED FINANCIAL STATEMENTS − (Continued)

SEPTEMBER 30, 2012

The following sets forth the effect of the restatement on the applicable line items in the Company’s consolidating balance sheet for the fiscal year ended September 30, 2011, which incorporates RSO as of December 31, 2011 (in thousands):

				Restatement Adjustments
	As Previously Reported			RSO		Eliminations			As Restated
ASSETS
Cash	$	24,455		$	—	$	—		$	24,455
Restricted cash	20,257			—		—			20,257
Receivables	1,981			—		—			1,981
Receivables from managed entities and related parties, net	54,815			—		(2,698		)	52,117
Investments in commercial finance, net	192,012			—		—			192,012
Investments in real estate, net	19,942			—		—			19,942
Investment securities, at fair value	15,124			—		(12,392		)	2,732
Investments in unconsolidated entities	12,710			—		—			12,710
Assets of consolidated variable interest entities ("VIE") - RSO:
Cash and cash equivalents (including restricted cash)	—			185,922		—			185,922
Investments, at fair value	—			179,539		—			179,539
Loans	—			1,784,714		(8,605		)	1,776,109
Investments in real estate and consolidated entities	—			98,906		(38,850		)	60,056
Other assets - RSO	—			35,643		(34		)	35,609
Total assets of consolidated VIE - RSO	—			2,284,724		(47,489		)	2,237,235
Property and equipment, net	6,998			—		—			6,998
Deferred tax assets, net	51,581			—		(7,666		)	43,915
Goodwill	7,969			—		—			7,969
Other assets	14,662			—		—			14,662
Total assets	$	422,506		$	2,284,724	$	(70,245	)	$	2,636,985
LIABILITIES AND EQUITY
Liabilities:
Accrued expenses and other liabilities	$	40,887		$	—	$	—		$	40,887
Payables to managed entities and related parties	1,232			—		(222		)	1,010
Borrowings	222,659			—		(8,605		)	214,054
Liabilities of consolidated VIE - RSO:
Borrowings	—			1,794,083		—			1,794,083
Other liabilities	—			60,951		(2,698		)	58,253
Total liabilities	264,778			1,855,034		(11,525		)	2,108,287
Commitments and contingencies
Equity:
Preferred stock	—			—		—			—
Common stock	281			—		—			281
Additional paid-in capital	281,686			—		—			281,686
Accumulated deficit	(48,032		)	—		(1,022		)	(49,054		)
Treasury stock, at cost	(98,954		)	—		—			(98,954		)
Accumulated other comprehensive loss	(14,613		)	—		12,244			(2,369		)
Total stockholders’ equity	120,368			—		11,222			131,590
Noncontrolling interests	37,360			—		(38,629		)	(1,269		)
Noncontrolling interest attributable to RSO	—			429,690		(31,313		)	398,377
Total equity	157,728			429,690		(58,720		)	528,698
	$	422,506		$	2,284,724	$	(70,245	)	$	2,636,985

61

RESOURCE AMERICA, INC.

NOTES TO RESTATED CONSOLIDATED FINANCIAL STATEMENTS − (Continued)

SEPTEMBER 30, 2012

The following sets forth the effect of the restatement on the applicable line items in the Company’s consolidating statement of operations for the fiscal year ended September 30, 2012, which incorporates RSO for the calendar year ended December 31, 2012 (in thousands):

				Restatement Adjustments
	As Previously Reported			RSO			Eliminations			As Restated
REVENUES:
Real estate	$	40,595		$	—		$	—		$	40,595
Financial fund management	21,957			—			—			21,957
Commercial finance	1,884			—			—			1,884
	64,436			—			—			64,436
Revenues from consolidated VIE - RSO (see Note 28)	—			123,698						123,698
Elimination of consolidated VIE revenues attributed to operating segments	—			—			(17,234		)	(17,234		)
Total Revenues	64,436			123,698			(17,234		)	170,900
COSTS AND EXPENSES:
Real estate	29,669			—			—			29,669
Financial fund management	17,086			—			—			17,086
Commercial finance	2,414			—			—			2,414
Restructuring expenses	365			—			—			365
General and administrative	10,460			—			—			10,460
Gain on sale of leases and loans	(37		)	—			—			(37		)
Impairment charges	2,280			—			—			2,280
Provision for credit losses	17,246			—			—			17,246
Depreciation and amortization	3,653			—			—			3,653
	83,136			—			—			83,136
Expenses from consolidated VIE - RSO	—			78,452			(14,602		)	63,850
Elimination of consolidated VIE expenses attributed to operating segments	—			—			(16,360		)	(16,360		)
Total expenses	83,136			78,452			(30,962		)	130,626
OPERATING INCOME (LOSS)	(18,700		)	45,246			13,728			40,274
OTHER INCOME (EXPENSE):
Gain on deconsolidation and sale of subsidiaries	63,291			—			—			63,291
Loss on extinguishment of debt	(2,190		)	—			—			(2,190		)
Other-than-temporary impairment on investments	(74		)	—			—			(74		)
Gain on sale of investment securities, net	63			—			—			63
Interest expense	(4,741		)	—			—			(4,741		)
Other income (expense), net	2,103			—			(2,174		)	(71		)
Other income, net, from consolidated VIE - RSO	—			19,197						19,197
Elimination of consolidated VIE other income, net	—			—			227			227
	58,452			19,197			(1,947		)	75,702
Income from continuing operations before taxes	39,752			64,443			11,781			115,976
Income tax provision	13,512			—			14,602			28,114
Income (loss) from continuing operations	26,240			64,443			(2,821		)	87,862
Loss from discontinued operations, net of tax	(58		)	—			—			(58		)
Net income (loss)	26,182			64,443			(2,821		)	87,804
Net (income) loss attributable to noncontrolling interests	(348		)	—			571			223
Net income attributable to noncontrolling interests - RSO	—			(62,520		)	—			(62,520		)
Net income (loss) attributable to common shareholders	$	25,834		$	1,923		$	(2,250	)	$	25,507

62

RESOURCE AMERICA, INC.

NOTES TO RESTATED CONSOLIDATED FINANCIAL STATEMENTS − (Continued)

SEPTEMBER 30, 2012

The following sets forth the effect of the restatement on the Company’s basic and diluted earnings (loss) per share for the fiscal years ended September 30, 2012 and 2011, which incorporates RSO for the calendar year ended December 31, 2012 and 2011 (in thousands, except share data):

				Restatement Adjustments
	As Previously Reported			RSO		Eliminations			As Restated
For the fiscal year ended September 30, 2012:
Amounts attributable to common shareholders:
Income (loss) from continuing operations	$	25,892		$	1,923	$	(2,250	)	$	25,565
Discontinued operations	(58		)	—		—			(58		)
Net income (loss)	$	25,834		$	1,923	$	(2,250	)	$	25,507
	As Previously Reported								As Restated
Basic earnings per share:
Continuing operations	$	1.31							$	1.29
Discontinued operations	—								—
Net income	$	1.31							$	1.29
Weighted average shares outstanding	19,740								19,740
Diluted earnings per share:
Continuing operations	$	1.25							$	1.24
Discontinued operations	—								—
Net income	$	1.25							$	1.24
Weighted average shares outstanding	20,634								20,634
				Restatement Adjustments
	As Previously Reported			RSO		Eliminations			As Restated
For the fiscal year ended September 30, 2011:
Amounts attributable to common shareholders:
(Loss) income from continuing operations	$	(6,026	)	$	1,433	$	(7,768	)	$	(12,361	)
Discontinued operations	(2,202		)	—		—			(2,202		)
Net (loss) income	$	(8,228	)	$	1,433	$	(7,768	)	$	(14,563	)
	As Previously Reported								As Restated
Basic loss per share:
Continuing operations	$	(0.31	)						$	(0.64	)
Discontinued operations	(0.11		)						(0.11		)
Net loss	$	(0.42	)						$	(0.75	)
Weighted average shares outstanding	19,525								19,525
Diluted loss per share:
Continuing operations	$	(0.31	)						$	(0.64	)
Discontinued operations	(0.11		)						(0.11		)
Net loss	$	(0.42	)						$	(0.75	)
Weighted average shares outstanding	19,525								19,525

63

RESOURCE AMERICA, INC.

NOTES TO RESTATED CONSOLIDATED FINANCIAL STATEMENTS − (Continued)

SEPTEMBER 30, 2012

The following sets forth the effect of the restatement on the applicable line items in the Company’s consolidating statement of operations for the fiscal year ended September 30, 2011, which incorporates RSO for the calendar year ended December 31, 2011(in thousands):

				Restatement Adjustments
	As Previously Reported			RSO			Eliminations			As Restated
REVENUES:
Real estate	$	38,380		$	—		$	—		$	38,380
Financial fund management	25,841			—			—			25,841
Commercial finance	21,795			—			—			21,795
	86,016			—			—			86,016
Revenues from consolidated VIE - RSO	—			95,986			—			95,986
Elimination of consolidated VIE revenues attributed to operating segments	—			—			(15,070		)	(15,070		)
Total Revenues	86,016			95,986			(15,070		)	166,932
COSTS AND EXPENSES:
Real estate	24,465			—			—			24,465
Financial fund management	20,562			—			—			20,562
Commercial finance	15,207			—			—			15,207
General and administrative	11,522			—			—			11,522
Gain on sale of leases and loans	(659		)	—			—			(659		)
Provision for credit losses	10,661			—			—			10,661
Depreciation and amortization	10,739			—			—			10,739
	92,497			—			—			92,497
Expenses from consolidated VIE - RSO	—			62,139			(12,036		)	50,103
Elimination of consolidated VIE expenses attributed to operating segments	—			—			(11,061		)	(11,061		)
Total expenses	92,497			62,139			(23,097		)	131,539
OPERATING (LOSS) INCOME	(6,481		)	33,847			8,027			35,393
OTHER INCOME (EXPENSE):
Gain on sale of management contract	6,520			—			—			6,520
Gain on extinguishment of servicing and repurchase liabilities	4,426			—			(4,426		)	—
Loss on sale of investment securities, net	(1,198		)	—			—			(1,198		)
Interest expense	(15,343		)	—			—			(15,343		)
Other income (expense), net	2,242			—			(2,455		)	(213		)
Other income, net, from consolidated VIE - RSO	—			3,869						3,869
Elimination of consolidated VIE other income, net	—						212			212
	(3,353		)	3,869			(6,669		)	(6,153		)
(Loss) income from continuing operations before taxes	(9,834		)	37,716			1,358			29,240
Income tax (benefit) provision	(4,607		)	—			12,036			7,429
(Loss) income from continuing operations	(5,227		)	37,716			(10,678		)	21,811
Loss from discontinued operations, net of tax	(2,202		)	—			—			(2,202		)
Net (loss) income	(7,429		)	37,716			(10,678		)	19,609
Net (income) loss attributable to noncontrolling interests	(799		)				2,910			2,111
Net income attributable to noncontrolling interests - RSO	—			(36,283		)	—			(36,283		)
Net (loss) income attributable to common shareholders	$	(8,228	)	$	1,433		$	(7,768	)	$	(14,563	)

64

RESOURCE AMERICA, INC.

NOTES TO RESTATED CONSOLIDATED FINANCIAL STATEMENTS − (Continued)

SEPTEMBER 30, 2012

The following sets forth the effect of the restatement on the applicable line items in the Company’s consolidating statement of comprehensive income for the fiscal year ended September 30, 2012, which incorporates RSO for the calendar year ended December 31, 2012 (in thousands):

				Restatement Adjustments
	As Previously Reported			RSO			Eliminations			As restated
Net income (loss)	$	26,182		$	64,443		$	(2,821	)	$	87,804
Other comprehensive income (loss):
Unrealized gain (loss) on investment securities available for sale, net of tax	1,363			—			(1,391		)	(28		)
Less: reclassification for losses realized	45			—			—			45
	1,408			—			(1,391		)	17
Minimum pension liability adjustments, net of tax	(289		)	—			—			(289		)
Minimum pension liability - reclassification for losses realized, net of tax	214			—			1			215
	(75		)	—			1			(74		)
Unrealized loss on hedging contracts	(6		)	—			—			(6		)
Deconsolidation of LEAF- unrealized loss on hedging contracts	255			—			—			255
	249			—			—			249
Subtotal - RAI activity:	1,582			—			(1,390		)	192
Activity related to consolidated VIE - RSO:
Reclassification adjustments for gain included in net income	—			1,728			—			1,728
Unrealized gain on available-for-sale securities, net	—			18,770			—			18,770
Reclassification adjustments associated with unrealized loss from interest rate hedges included in net income	—			227			—			227
Unrealized losses on derivatives, net	—			(1,476		)	—			(1,476		)
Subtotal activity related to consolidated VIE -RSO:	—			19,249			—			19,249
Subtotal - other comprehensive income (loss)	1,582			19,249			(1,390		)	19,441
Comprehensive income (loss)	27,764			83,692			(4,211		)	107,245
Comprehensive income attributable to noncontrolling interests	(397		)	—			(81,198		)	(81,595		)
Comprehensive income (loss) attributable to common shareholders	$	27,367		$	83,692		$	(85,409	)	$	25,650

65

RESOURCE AMERICA, INC.

NOTES TO RESTATED CONSOLIDATED FINANCIAL STATEMENTS − (Continued)

SEPTEMBER 30, 2012

The following sets forth the effect of the restatement on the applicable line items in the Company’s consolidating statement of comprehensive income for the fiscal year ended September 30, 2011, which incorporates RSO for the calendar year ended December 31, 2011 (in thousands):

				Restatement Adjustments
	As Previously Reported			RSO			Eliminations			As restated
Net (loss) income	$	(7,429	)	$	37,716		$	(10,678	)	$	19,609
Other comprehensive (loss) income:
Unrealized (loss) gain on investment securities available for sale, net of tax	(2,564		)	—			2,036			(528		)
Less: reclassification for losses realized	904			—			—			904
	(1,660		)	—			2,036			376
Minimum pension liability adjustments, net of tax	(632		)	—			—			(632		)
Minimum pension liability - reclassification for losses realized, net of tax	169			—			—			169
	(463		)	—			—			(463		)
Unrealized loss on hedging contracts	(75		)	—			—			(75		)
Foreign currency gain	368			—			—			368
Subtotal- RAI activity	(1,830		)	—			2,036			206
Activity related to consolidated VIE - RSO:
Reclassification adjustments for gain included in net income	—			1,080			—			1,080
Unrealized losses on available-for-sale securities, net	—			(13,798		)	—			(13,798		)
Reclassification adjustments associated with unrealized loss from interest rate hedges included in net income	—			227			—			227
Unrealized gains on derivatives, net	—			82			—			82
Subtotal activity related to consolidated VIE-RSO:	—			(12,409		)	—			(12,409		)
Subtotal- other comprehensive (loss) income	(1,830		)	(12,409		)	2,036			(12,203		)
Comprehensive (loss) income	(9,259		)	25,307			(8,642		)	7,406
Comprehensive income attributable to noncontrolling interests	(775		)	—			(20,964		)	(21,739		)
Comprehensive (loss) income attributable to common shareholders	$	(10,034	)	$	25,307		$	(29,606	)	$	(14,333	)

66

RESOURCE AMERICA, INC.

NOTES TO RESTATED CONSOLIDATED FINANCIAL STATEMENTS − (Continued)

SEPTEMBER 30, 2012

The following sets forth the effect of the restatement on the applicable line items in the Company’s consolidating statement of cash flows for the fiscal year ended September 30, 2012, which incorporates cash flows from RSO for the calendar year ended December 31, 2012 (in thousands):

				Restatement Adjustments
	As Previously Reported			RSO			Eliminations			As Restated
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	26,182		$	64,443		$	(2,821	)	$	87,804
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation and amortization	4,875			—			—			4,875
Impairment charges	2,280			—			—			2,280
Provision for credit losses	17,246			—			—			17,246
Unrealized gain on trading securities	(1,108		)	—			—			(1,108		)
Equity in earnings of unconsolidated entities	(3,439		)	—			—			(3,439		)
Distributions from unconsolidated entities	3,463			—			—			3,463
Gain on sale of leases and loans	(37		)	—			—			(37		)
Other-than-temporary impairment losses recognized in earnings	74			—			—			74
Gain on sale of loans and investment securities, net	(972		)	—			—			(972		)
Gain on sale of assets	(84		)	—			—			(84		)
Gain on sale and deconsolidation of subsidiaries	(63,291		)	—			—			(63,291		)
Loss on extinguishment of debt	2,190			—			—			2,190
Deferred income tax provision	13,393			—			—			13,393
Equity-based compensation issued	1,286			—			—			1,286
Equity-based compensation received	(153		)	—			153			—
Trading securities purchases and sales, net	(1,048		)	—			—			(1,048		)
Loss from discontinued operations	58			—			—			58
Changes in operating assets and liabilities	(2,911		)	—			—			(2,911		)
Change in cash attributable to operations of consolidated VIE - RSO	—			(65,608		)	382			(65,226		)
Net cash used in operating activities	(1,996		)	(1,165		)	(2,286		)	(5,447		)
CASH FLOWS FROM INVESTING ACTIVITIES:							—
Capital expenditures	(222		)	—			—			(222		)
Payments received on real estate loans and real estate	1,726			—			—			1,726
Investments in unconsolidated real estate entities	(1,608		)	—			—			(1,608		)
Purchase of commercial finance assets	(18,483		)	—			—			(18,483		)
Principal payments received on leases and loans	9,043			—			—			9,043
Purchase of loans and securities by consolidated VIE - RSO	—			(769,762		)	—			(769,762		)
Principal payments and proceeds from sales received by consolidated VIE - RSO	—			822,476			—			822,476
Cash divested on deconsolidation of LEAF	(2,284		)	—			—			(2,284		)
Net proceeds from sale of Apidos and cash divested on deconsolidation	17,860			—			—			17,860
Purchase of loans and investments	(1,874		)	—			—			(1,874		)
Proceeds from sale of loans and investments	262			—			—			262
Increase in restricted cash of consolidated VIE - RSO	—			50,756			—			50,756
Other investing activity of consolidated VIE - RSO	—			(1,849		)	(76		)	(1,925		)
Net cash provided by (used in) investing activities	4,420			101,621			(76		)	105,965

67

RESOURCE AMERICA, INC.

NOTES TO RESTATED CONSOLIDATED FINANCIAL STATEMENTS − (Continued)

SEPTEMBER 30, 2012

				Restatement Adjustments
	As Previously Reported			RSO			Eliminations		As Restated
CASH FLOWS FROM FINANCING ACTIVITIES:							—
Increase in borrowings	128,845			—			—		128,845
Principal payments on borrowings	(129,416		)	—			—		(129,416		)
Net (repayments) borrowings of debt by consolidated VIE - RSO	—			(207,149		)	—		(207,149		)
Dividends paid	(2,310		)	—			—		(2,310		)
Dividends paid on common stock by consolidated VIE - RSO	—			(74,050		)	2,174		(71,876		)
Proceeds from issuance of common stock	2,131			—			—		2,131
Net proceeds from issuance of common stock by consolidated VIE - RSO	—			171,056			—		171,056
Repurchase of common stock	(2,324		)	—			—		(2,324		)
Preferred stock dividends paid by LEAF to RSO	(188		)	—			188		—
Increase in restricted cash	(664		)	—			—		(664		)
Other	(2,275		)	—			—		(2,275		)
Other financing activity of consolidated VIE - RSO	—			9,687			—		9,687
Net cash (used in) provided by financing activities	(6,201		)	(100,456		)	2,362		(104,295		)
CASH FLOWS FROM DISCONTINUED OPERATIONS:							—
Operating activities	(1,285		)	—			—		(1,285		)
Net cash used in discontinued operations	(1,285		)	—			—		(1,285		)
							—
Decrease in cash	(5,062		)	—			—		(5,062		)
Cash, beginning of year	24,455			—			—		24,455
Cash, end of year	$	19,393		$	—		$	—	$	19,393

68

RESOURCE AMERICA, INC.

NOTES TO RESTATED CONSOLIDATED FINANCIAL STATEMENTS − (Continued)

SEPTEMBER 30, 2012

The following sets forth the effect of the restatement on the applicable line items in the Company’s consolidating statement of cash flows for the fiscal year ended September 30, 2011, which incorporates cash flows from RSO for the calendar year ended December 31, 2011 (in thousands):

				Restatement Adjustments
	As Previously Reported			RSO			Eliminations			As Restated
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income	$	(7,429	)	$	37,716		$	(10,678	)	$	19,609
Adjustments to reconcile net (loss) income to net cash ( used in) provided by operating activities:
Depreciation and amortization	15,780			—			88			15,868
Provision for credit losses	10,661			—			799			11,460
Equity in earnings of unconsolidated entities	(10,377		)	—			—			(10,377		)
Distributions from unconsolidated entities	4,522			—			—			4,522
Gain on sale of leases and loans	(659		)	—			—			(659		)
Loss on sale of loans and investment securities, net	1,198			—			—			1,198
Gain on sale of assets	(196		)	—			—			(196		)
Gain on sale of management contract	(6,520		)	—			—			(6,520		)
Gain on extinguishment of servicing and repurchase liabilities	(4,426		)	—			4,426			—
Deferred income tax benefit	(5,657		)	—			—			(5,657		)
Equity-based compensation issued	2,525			—			—			2,525
Equity-based compensation received	(463		)	—			463			—
Loss from discontinued operations	2,202			—			—			2,202
Changes in operating assets and liabilities	(2,624		)	—			—			(2,624		)
(Increase) decrease in cash held by consolidated VIE - RSO	—			(18,307		)	2,142			(16,165		)
Net cash (used in) provided by operating activities	(1,463		)	19,409			(2,760		)	15,186
CASH FLOWS FROM INVESTING ACTIVITIES:							—
Capital expenditures	(1,165		)	—			—			(1,165		)
Payments received on real estate loans and real estate	16,487			—			—			16,487
Investments in unconsolidated real estate entities	(2,371		)	—			—			(2,371		)
Purchase of commercial finance assets	(105,777		)	—			—			(105,777		)
Principal payments received on leases and loans	29,056			—			—			29,056
Purchase of loans and securities by consolidated VIE - RSO	—			(1,087,353		)	15,221			(1,072,132		)
Principal payments and proceeds from sales received by consolidated VIE - RSO	—			663,663			—			663,663
Proceeds from sale of management contract	9,095			—			—			9,095
Purchase of loans and investments	—			—			—			—
Proceeds from sale of loans and investments	3,779			—			—			3,779
Increase in restricted cash of consolidated VIE - RSO	—			31,014			—			31,014
Other investing activity of consolidated VIE	—			(45,533		)	—			(45,533		)
Net cash (used in) provided by investing activities	(50,896		)	(438,209		)	15,221			(473,884		)

69

RESOURCE AMERICA, INC.

NOTES TO RESTATED CONSOLIDATED FINANCIAL STATEMENTS − (Continued)

SEPTEMBER 30, 2012

				Restatement Adjustments
	As Previously Reported			RSO			Eliminations			As Restated
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in borrowings	106,043			—			—			106,043
Principal payments on borrowings	(55,778		)	—			—			(55,778		)
Net (repayments) borrowings of debt by consolidated VIE - RSO	—			358,029			—			358,029
Dividends paid	(2,246		)	—			—			(2,246		)
Dividends paid on common stock by consolidated VIE - RSO	—			(69,869		)	2,455			(67,414		)
Proceeds from issuance of common stock	1,914			—			—			1,914
Net proceeds from issuance of common stock by consolidated VIE - RSO	—			129,911			—			129,911
Repurchase of common stock	(241		)	—			—			(241		)
Proceeds from issuance of LEAF preferred stock	15,221			—			(15,221		)	—
Preferred stock dividends paid by LEAF to RSO	(305		)	—			305			—
Decrease in restricted cash	4,530			—			—			4,530
Other	(2,299		)	—			—			(2,299		)
Other financing activity of consolidated VIE - RSO	—			729			—			729
Net cash provided by (used in) financing activities	66,839			418,800			(12,461		)	473,178
CASH FLOWS FROM DISCONTINUED OPERATIONS:							—
Operating activities	(1,268		)	—			—			(1,268		)
Net cash used in discontinued operations	(1,268		)	—			—			(1,268		)
							—
Increase in cash	13,212			—			—			13,212
Cash, beginning of year	11,243			—			—			11,243
Cash, end of year	$	24,455		$	—		$	—		$	24,455

NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The consolidated financial statements reflect the Company's accounts and the accounts of the Company's majority-owned and/or controlled subsidiaries. The Company follows the provisions of Accounting Standards Codification (“ASC”) Topic 810, “Consolidation,” and accordingly consolidates entities that are variable interest entities (“VIEs”) where it has determined that it is the primary beneficiary of such entities. Once it is determined that the Company holds a variable interest in a VIE, management must perform a qualitative analysis to determine (i) if the Company has the power to direct the matters that most significantly impact the VIE's financial performance; and (ii) if the Company has the obligation to absorb the losses of the VIE that could potentially be significant to the VIE or the right to receive the benefits of the VIE that could potentially be significant to the VIE. If the Company's interest possesses both of these characteristics, the Company is deemed to be the primary beneficiary and would be required to consolidate the VIE. The Company will continually assess its involvement with VIEs and reevaluate the requirement to consolidate them. The portions of these entities that the Company does not own are presented as noncontrolling interests as of the dates and for the periods presented in the consolidated financial statements.

Variable interests in the Company's real estate segment have historically related to subordinated financings in the form of mezzanine loans or unconsolidated real estate interests. As of September 30, 2012 and 2011, the Company had one real estate variable interest that it consolidated. The property underlying this loan was subsequently sold in November 2012 and the loan was resolved. See Note 26 for additional disclosures pertaining to VIEs.

All intercompany transactions and balances have been eliminated in the Company's consolidated financial statements.

70

RESOURCE AMERICA, INC.

NOTES TO RESTATED CONSOLIDATED FINANCIAL STATEMENTS − (Continued)

SEPTEMBER 30, 2012

Reclassifications and Revisions

Certain reclassifications and revisions have been made to the fiscal 2011 consolidated financial statements to conform to the fiscal 2012 presentation.  Real estate assets of a consolidated VIE of $944,000 formerly included in Property and Equipment are now included in Investments in Real Estate to more properly reflect the nature of the asset.

Use of Estimates

Preparation of the Company's consolidated financial statements in conformity with accounting principles generally accepted in the United States (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amounts of revenues and costs and expenses during the reporting period. The Company makes estimates of its allowance for credit losses, the valuation allowance against its deferred tax assets, discounts and collectability of management fees, the valuation of stock-based compensation, and in determining whether a decrease in the fair value of an investment is an other-than-temporary impairment. The financial fund management segment makes assumptions in determining the fair value of its investments in investment securities and in estimating the liability, if any, for clawback provisions on certain of its partnership interests. The Company used assumptions, specifically inputs to the Black-Scholes pricing model and the discounted cash flow model, in computing the fair value of the Senior Notes and warrants that it issued in September and October 2009. Actual results could differ from these estimates.

Prior to the deconsolidation of LEAF, significant estimates specifically for the commercial finance segment included the unguaranteed residual values of leased equipment, servicing liabilities and repurchase obligations, allowance for lease and loan losses, impairment of long-lived assets and goodwill, and the fair values and effectiveness of interest rate swaps.

Investments in Unconsolidated Loan Manager

The Company's interest in CVC Credit Partners and the Company's preferred equity interest in Apidos-CVC is included in Investments in Unconsolidated Loan Manager on the consolidated balance sheets. The Company accounts for its investment in CVC Credit Partners based on the equity method since the Company has the ability to exercise significant influence over the partnership.

The Company accounts for its preferred equity interest in Apidos-CVC on the cost method. As the incentive fees underlying the preferred equity are received, 75% will be distributed to the Company which will initially be recorded as income, net of any contractual amounts due to third-parties. On a quarterly basis, the Company will evaluate the investment for impairment by estimating the fair value of the expected future cash flows from the incentive management fees. If the estimated fair value is less than the cost basis of the preferred shares, the preferred equity interest will be deemed to be impaired. If the Company determines that the shortfall is other-than-temporary, the impairment will be recorded as a reduction of the preferred equity interest by reducing the revenues previously recordedon these preferred shares. To the extent that the investment in preferred equity has been reduced to zero, all subsequent distributions will be recorded as income.

Investments in Unconsolidated Entities

The Company accounts for the investments it has in the real estate, financial fund management and commercial finance investment entities it has sponsored and manages primarily under the equity method of accounting since the Company has the ability to exercise significant influence over the operating and financial decisions of these entities.  To the extent that there is a negative balance in the investment for any of these entities, these balances are reclassified to reduce any receivable from such entities. The Company accounts for its investment in Resource Real Estate Opportunity REIT, Inc. (“RRE Opportunity REIT”) on the cost method since the Company owns less than 1% of the shares outstanding. The Company will evaluate these investments for impairment on a quarterly basis. There were no identified events that had a significant adverse effect on these investments and, as such, no impairment was recorded.

Real estate. The Company has sponsored and manages nine real estate limited partnerships, four limited liability companies, a corporation operating as a REIT and six tenant in common (“TIC”) property interest programs that invest in multifamily residential properties.  

Financial fund management.  In the Financial Fund Management operations, the Company holds the following interests in unconsolidated entities:

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• general and limited partnership interests in seven company-sponsored and managed partnerships that invest in regional bank, and a limited partnership interest in an affiliated partnership organized as a credit opportunities fund that invests in bank loans and high yield bonds; and

• equity interests in two unconsolidated loan managers that manage trust preferred securities which are held by 13 separate CDOs.

Commercial finance.  The Company has interests in four company-sponsored commercial finance investment partnerships. 

Concentration of Credit Risk

The Company’s receivables from managed entities are comprised of unsecured amounts due from its investment entities and other affiliated entities, which the Company has sponsored and manages.  The Company evaluates the collectability of these receivables and records an allowance to the extent any portion of that receivable is determined to be uncollectible.  Additionally, the Company records a discount where it determines that any of the entities will be unable to repay the Company in the near term.  In the event that any of these entities fail, the corresponding receivable balance would be at risk.

Financial instruments, which potentially subject the Company to concentrations of credit risk, consist principally of periodic temporary investments of cash and restricted cash.  The Company places its temporary cash investments and restricted cash in high quality short-term money market instruments with high-quality financial institutions and brokerage firms.  At September 30, 2012, the Company had $12.0 million (excluding restricted cash) in interest-bearing deposits at various banks, which was over the temporary insurance limit of the Federal Deposit Insurance Corporation of $250,000, or in deposit in foreign banks or in brokerage accounts where no insurance coverage is available.  No losses have been experienced on such investments.

Restricted Cash

The Company's restricted cash balance was substantially eliminated with the November 2011 deconsolidation of LEAF. The balance at September 30, 2012 includes $376,000 of escrow deposits for the real estate mortgage and a $250,000 clearing deposit with a third-party broker dealer who serves as a clearing agent for the Company's broker dealer. The $20.3 million balance in restricted cash at September 30, 2011 primarily related to LEAF, which included $10.4 million of customer lockbox payments being processed by the bank as well as $6.9 million of cash held by the lender on the LEAF credit facility pending the pledge of sufficient commercial finance assets as collateral.  In addition, the balance at September 30, 2011 included $2.2 million of proceeds from the sale of the Company’s management contract for Resource Europe CLO I (“REM I”) that was subsequently utilized to reduce the Company’s corporate credit facility.

Foreign Currency Translation

Foreign currency transaction gains and losses of the Company’s European operations are recognized in the determination of net income.  Foreign currency translation adjustments related to these operations are included in net income.

Revenue Recognition – Fee Income

RSO management fees.  The Company earns base management and incentive management fees for managing RSO.  In addition, the Company is reimbursed for its expenses incurred on behalf of RSO and its operations and for property management fees.  Management fees, property management fees and reimbursed expenses are recognized monthly when earned.  In addition, in February 2011, the Company entered into a services agreement with RSO to provide sub-advisory collateral management and administrative services for five CLOs holding approximately $1.7 billion in bank loans.  In connection with the sub-advisory services provided, RSO pays CVC Credit Partners 10% of all base and additional collateral management fees and 50% of all incentive collateral management fees it collects.

The quarterly incentive compensation to the Company is payable seventy-five percent (75%) in cash and twenty-five percent (25%) in restricted shares of RSO common stock.  The Company may elect to receive more than 25% of its incentive compensation in RSO restricted stock.  However, the Company’s ownership percentage in RSO, direct and indirect, cannot exceed 15%.  All shares are fully vested upon issuance, provided that the Company may not sell such shares for one year after the incentive compensation becomes due and payable.  The restricted stock is valued at the average of the closing prices of RSO common stock over the thirty-day period ending three days prior to the issuance of such shares.    

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Under a fee agreement, in connection with the April 2012 sale of Apidos to CVC, the Company must remit a portion of the base management fee and incentive compensation it receives from RSO to Apidos-CVC for advisory services in managing the portfolio of CLOs. The percentage paid to Apidos-CVC is determined by dividing the equity RSO holds in four Apidos CLOs by the calculated equity used to determine the base management fee. Any incentive compensation paid to Apidos-CVC excludes non-recurring items unrelated to Apidos-CVC.

During fiscal 2012, 2011 and 2010, the management, incentive, servicing and acquisition fees that the Company received from RSO were a combined 26%, 14% and 12%, respectively, of the Company’s consolidated revenues.  These fees have been allocated and, accordingly, were reported as revenues by each of the Company’s operating segments. The Company reports these fees as an adjustment to the consolidated revenues of RSO in consolidation to reflect the compensation arrangement between the Company and RSO that would have otherwise been eliminated in consolidation. Under the terms of the management agreement with RSO, the Company is entitled to base management and incentive management fees and the reimbursement of out-of-pocket expenses.

Real estate fees.  The Company records acquisition fees of 1% to 2% of the net purchase price of properties acquired by real estate investment entities it sponsors and financing fees equal to 0.5% to 1.75% of the debt obtained or assumed related to the properties acquired.  In addition, the company receives debt origination fees which range from 0.5% to 5.0% debt origination fee on the purchase price of real estate debt investments acquired on behalf of real estate investment entities. The Company recognizes these fees when its sponsored entities acquire the properties and obtain the related financing.

The Company records a monthly property management fee equal to 4.5% to 5% of the gross operating revenues from the underlying properties and a monthly debt management fee equal to 0.167% (2% per year) of the gross offering proceeds deployed in debt investments.  The Company recognizes these fees monthly when earned.

Additionally, the Company records an annual investment management fee from its limited partnerships equal to 1% of the gross offering proceeds of each partnership.  The Company records an annual asset management fee from its TIC programs equal to 1% to 2% of the gross revenues from the properties.  These investment management fees and asset management fees are recognized monthly when earned and are discounted to the extent that these fees are not expected to be paid timely.

The Company records quarterly asset management fees from its joint ventures with an institutional partner, which range from 0.833% to 1% per annum of the gross funds invested in distressed real estate loans and assets.  The Company recognizes these fees monthly.

Financial fund management fees. The Company earns monthly investment and management fees on assets held in CDOs on behalf of institutional and individual investors.  These fees, which vary by CDO, range between 0.10% and 0.35% of the aggregate principal balance of eligible collateral held by the CDOs.  These investment management fees and asset management fees are recognized monthly when earned and are discounted to the extent that these fees are deferred.  Additionally, the Company records fees for managing the assets held by the partnerships or funds it has sponsored and for managing their general operations.  These fees, which vary by limited partnership, range between 0.75% and 2% of the partnership or fund capital balance.

The Company also enters into management or advisory agreements for managing the assets held by third-parties.  These fees, which vary by agreement, are recognized monthly when earned.

Introductory agent fees.  The Company earns fees for acting as an introducing agent for transactions involving sales of securities of financial services companies, REITs and insurance companies.  The Company recognizes these fees monthly when earned.

Commercial finance fees.  Prior to the November 2011 deconsolidation of LEAF, the Company recorded acquisition fees from its leasing investment entities (based on a percentage of the cost of the leased equipment acquired) as compensation for expenses incurred by the Company for those acquisitions.  The fees, which ranged from 1% to 2%, were earned at the time of the sale of the related leased equipment to the investment entities.  The Company also had recorded management fees from its investment entities for managing and servicing the leased assets acquired when the service was performed.  The payment of such fees to the Company by each entity is contingent upon the partners receiving specified annual distributions from each entity.  During fiscal 2012 , 2011, and 2010 the Company permanently waived $4.7 million, $8.1 million and $3.8 million of management fees from its four investment entities since the distributions to the limited partners were less than the annual specified amounts.  The management fees that were waived are not deferrals and accordingly, will not be paid by the commercial finance investment entities. The ability of these entities to pay future management fees is uncertain.  A discount is recorded where payment will not be received timely and an allowance is recorded where payment is determined to be uncollectible.  Prior to the deconsolidation of LEAF, the Company was paid for the operating and administrative expenses it incurred to manage these entities.

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Revenue Recognition – Rental income

Rental revenue is primarily derived from an 86-room boutique hotel in Savannah, Georgia, which is 80% owned by the Company.  The Company recognizes the room rental revenue on a daily basis.  The Company also derives rental revenue on retail space in the hotel and office space in the office building that the Company owns located in Philadelphia, Pennsylvania.  The income from these leases is recognized over the term of the lease as earned.  Some of the leases include rent abatements and scheduled rent increases over the lease terms, which are accounted for on a straight-line basis.  Tenant reimbursements are recognized in the period that the related costs are incurred. Percentage rent is recognized when the tenant's reported sales have reached certain levels specified in the respective lease.

Stock-Based Compensation

The Company values the restricted stock it issues based on the closing price of its stock on the date of grant.  For stock option awards, the Company determines the fair value by applying the Black-Scholes pricing model.  These equity awards are amortized to compensation expense over the respective vesting period, less an estimate for forfeitures.

Earnings (Loss) Per Share

Basic earnings (loss) per share (“Basic EPS”) is determined by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the period, including participating securities.  Diluted earnings (loss) per share (“Diluted EPS”) is computed by dividing net income (loss) by the sum of the weighted average number of shares of common stock outstanding including participating securities, as well as after giving effect to the potential dilution from the exercise of securities, such as stock options and warrants, into shares of common stock as if those securities were exercised.

Financing Receivables

Receivables from Managed Entities.  The Company performs a review of the collectability of its receivables from managed entities on a quarterly basis.  If upon review there is an indication of impairment, the Company will analyze the future cash flows of the managed entity.  With respect to the receivables from its commercial finance investment partnerships, this takes into consideration several assumptions by management, primarily concerning estimations of future bad debts and recoveries.  For the receivables from the real estate investment entities for which there are indications of impairment, the Company estimates the cash flows through the sale of the underlying properties, which is based on projected net operating income as a multiple of published capitalization rates, which is then reduced by the underlying mortgage balances and priority distributions due to the investors in the entity.

Investments in Commercial Finance.  Prior to the deconsolidation of LEAF in November 2011, the Company’s investments in commercial finance, consisted primarily of direct financing leases, equipment loans, and operating leases.

Direct financing leases.  Certain of the Company’s lease transactions were accounted for as direct financing leases (as distinguished from operating leases).  Such leases transferred substantially all benefits and risks of equipment ownership to the customer.  The Company’s investment in direct financing leases consisted of the sum of the total future minimum contracted payments receivable and the estimated unguaranteed residual value of leased equipment, less unearned finance income.  Unearned finance income, which was recognized as revenue over the term of the financing by the effective interest method, represented the excess of the total future minimum lease payments plus the estimated unguaranteed residual value expected to be realized at the end of the lease term over the cost of the related equipment.  Initial direct costs incurred in the consummation of the lease were capitalized as part of the investment in lease receivables and amortized over the lease term as a reduction of the yield.  The Company discontinued recognizing revenue for leases and loans for which payments were more than 90 days past due.  Fees from delinquent payments were recognized when received.

Equipment loans. For term loans, the investment consisted of the sum of the total future minimum loan payments receivable less unearned finance income.  Unearned finance income, which was recognized as revenue over the term of the financing by the effective interest method, represented the excess of the total future minimum contracted payments over the original cost of the loan.  For all other loans, interest income was recorded at the stated rate on the accrual basis to the extent that such amounts were expected to be collected.

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Operating leases.  Leases not meeting any of the criteria to be classified as direct financing leases were deemed to be operating leases.  The cost of the leased equipment, including acquisition fees associated with lease placements, was recorded as an asset and depreciated on a straight-line basis over the equipment’s estimated useful life, generally up to seven years.  Rental income consisted primarily of monthly periodic rental payments due under the terms of the leases.  The Company recognized rental income on a straight-line basis.

During the lease term of operating leases, the Company was prepared to remarket the equipment to the extent it was not able to recover the related cost and expenses of the equipment.  The Company’s policy was to review, on at least a quarterly basis, the expected economic life of its rental equipment in order to determine the recoverability of its undepreciated cost.  The Company would write down its rental equipment to its estimated net realizable value when it is probable that its carrying amount exceeded such value and the excess could be reasonably estimated; gains were only recognized upon actual sale of the rental equipment.  There were no write-downs of equipment during fiscal 2012, 2011, or 2010.

Future payment card receivables.  Additionally, the Company had provided capital advances to small businesses based on future credit card receipts.  The entire portfolio of future payment card receivables was on the cost recovery method whereby no income was recognized until the basis of the future payment card receivable had been fully recovered.

Allowance for credit losses.  The Company evaluated the adequacy of the allowance for credit losses in commercial finance (including investments in leases and loans and future payment card receivables) based upon, among other factors, management’s historical experience with the commercial finance portfolios it managed, an analysis of contractual delinquencies, economic conditions and trends, industry statistics and equipment finance portfolio characteristics, as adjusted for expected recoveries.  In evaluating historic performance of leases and loans, the Company performed a migration analysis, which estimates the likelihood that an account progressed through delinquency stages to ultimate write-off.  The Company fully reserved, net of recoveries, all leases and loans after they were 180 days past due.

Loans

Real estate loans.  Real estate loans that management has the intent and ability to hold for the foreseeable future, or until maturity or payoff, are stated at the amount of unpaid principal, reduced by unearned income and an allowance for credit losses, if necessary.  These loans are included in Investments in Real Estate in the consolidated balance sheets. Interest on these loans is calculated based upon the principal amount outstanding.  Accrual of interest is stopped on a loan when management believes, after considering economic factors, business conditions and collection efforts that the borrower’s financial condition is such that collection of interest is doubtful.

An impaired real estate loan may remain on accrual status during the period in which the Company is pursuing repayment of the loan; however, the loan is placed on non-accrual status at such time as (i) management believes that contractual debt service payments will not be met; or (ii) the loan becomes 90 days delinquent; and (iii) management determines the borrower is incapable of, or has ceased efforts toward, curing the cause of the impairment.  While on non-accrual status, the Company recognizes interest income only when an actual payment is received.  Loans are charged off after being on non-accrual for a period of one year.

The Company maintains an allowance for credit losses for real estate loans at a level deemed sufficient to absorb probable losses.  The Company considers general and local economic conditions, neighborhood values, competitive overbuilding, casualty losses and other factors that may affect the value of real estate loans.  The value of loans and real estate may also be affected by factors such as the cost of compliance with regulations and liability under applicable environmental laws, changes in interest rates and the availability of financing.  Income from a property will be reduced if a significant number of tenants are unable to pay rent or if available space cannot be rented on favorable terms.  In addition, the Company reviews all credits on a quarterly basis and continually monitors collections and payments from its borrowers and maintains an allowance for credit losses based upon its historical experience and its knowledge of specific borrower collection issues.  The Company reduces its investments in real estate loans and real estate by an allowance for amounts that may become unrealizable in the future.

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Investment Securities

The Company’s investment securities available-for-sale, including investments in the CLO issuers it sponsored, are carried at fair value.  The fair value of the CLO investments is based primarily on internally-generated expected cash flow models that require significant management judgment and estimates due to the lack of market activity and the use of unobservable pricing inputs.  Investments in affiliated entities, including holdings in The Bancorp, Inc. (“TBBK”) (NASDAQ: TBBK), are valued at the closing price of the respective publicly-traded stock.  The fair value of the cumulative net unrealized gains and losses on these investment securities, net of tax, is reported through accumulated other comprehensive income and loss.  Realized gains and losses on the sale of investments are determined on the trade date on the basis of specific identification and are included in net operating results.

The Company recognizes a realized loss when it is probable there has been an adverse change in estimated cash flows of the security holder from what had been previously estimated.  The security is then written down to fair value, and the unrealized loss is transferred from accumulated other comprehensive loss to the consolidated statements of operations as a charge to current earnings.  The cost basis adjustment for an other-than-temporary impairment would be recoverable only upon the sale or maturity of the security.

Periodically, the Company reviews the carrying value of its available-for-sale securities.  If the Company deems an unrealized loss to be other-than-temporary, it will record an impairment charge.  The Company’s process for identifying other-than-temporary declines in the fair value of its investments involves consideration of (i) the duration of a significant decline in value, (ii) the liquidity, business prospects and overall financial condition of the issuer, (iii) the magnitude of the decline, (iv) the collateral structure and other credit support, as applicable, and (v) the more-than-likely intention of the Company to hold the investment until the value recovers. When the analysis of the above factors results in a conclusion that a decline in fair value is other-than-temporary, an impairment charge is recorded and the cost of the investment is written down to fair value.

The Company purchased investment securities classified as trading during fiscal 2012. Trading securities are recorded at fair value with unrealized holding gains and losses reported in revenues by operating segment. The Company utilizes trade date accounting to record the purchases and sales of trading securities. The cost of a security is determined using the specific identification method. Earnings from trading securities, primarily reported net, are comprised of realized and unrealized gains and losses from sales of trading securities, mark to market adjustments to fair value, gains and losses related to foreign currency commissions from riskless principal trades, and gains and losses from other security transactions, if any. The Company utilizes third-party dealer quotes or bids and recent transactions to estimate the fair value of these securities. In fiscal 2011, the Company held shares of TBBK common stock in a benefit plan for a former executive (see Note 20). The shares, which were also classified as trading, were valued at the closing price of the stock with unrealized gains and losses included in Other Income in the consolidated statements of operations.

The Company recognizes dividend income on its investment securities classified as available-for-sale on the ex-dividend date.

Property and Equipment

Property and equipment, which includes amounts recorded under capital leases, are stated at cost.  Depreciation and amortization are based on cost, less estimated salvage value, using the straight-line method over the asset’s estimated useful life.  Maintenance and repairs are expensed as incurred.  Major renewals and improvements that extend the useful lives of property and equipment are capitalized. The amortization of assets classified under capital leases is included in depreciation and amortization expense.

Accounting for Income Taxes

The objectives of accounting for income taxes are to recognize the amount of taxes payable or refundable for the current year and to recognize deferred tax liabilities and assets for the future tax consequences of events that have been recognized in the Company’s consolidated financial statements or tax returns.

The Company adjusts the balance of its deferred taxes to reflect the tax rates at which future taxable amounts will likely be settled or realized.  The effects of tax rate changes on deferred tax liabilities and deferred tax assets, as well as other changes in income tax laws, are recognized in net earnings in the period during which such changes are enacted.  Valuation allowances are established and adjusted, when necessary, to reduce deferred tax assets to the amounts expected to be realized.  The Company assesses its ability to realize deferred tax assets primarily based on tax planning strategies.

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A tax position should only be recognized if it is more likely than not that the position will be sustained upon examination by the appropriate taxing authority.  A tax position that meets this threshold is measured as the largest amount of benefit that is greater than 0 percent likely of being realized upon ultimate settlement.  The Company classifies any tax penalties as general and administrative expenses and any interest as interest expense. The Company does not have any unrecognized tax benefits that would affect the effective tax rate.

Goodwill and Intangible Assets

Prior to the deconsolidation of LEAF, goodwill and other intangible assets with an indefinite life were not amortized.  Instead, a review for impairment was performed at least annually or more frequently if events and circumstances indicated impairment might have occurred.  The Company tested its goodwill at the reporting unit level using a two-step process.  The first step was a screen for potential impairment by comparing the fair value of a reporting unit to its carrying value.  If the fair value of a reporting unit exceeded the carrying value of the net assets assigned to a reporting unit, goodwill was considered not impaired and no further testing was required.  If the fair value was less than the carrying value, step two was completed to measure the amount of impairment, if any.  No impairment charge was recognized on the goodwill.

The Company utilized several approaches, including discounted expected cash flows, market data and comparable sales transactions to estimate the fair value of its reporting unit for its impairment review of goodwill.  Those approaches required assumptions and estimates of many critical factors, including revenue and market growth, operating cash flows, market multiples, and discount rates, which were based on the existing economic environment and credit market conditions.

In the January 2011 formation of LEAF, the $8.0 million balance of goodwill was transferred from LEAF Financial to LEAF and, as a result of the November 2011 LEAF Transaction, was deconsolidated from the Company's balance sheets.

Long-lived assets and identifiable intangibles with finite lives were reviewed for impairment whenever events or changes in circumstances indicated that the carrying amount of the asset may not be recoverable.  Recoverability of assets to be held and used was measured by a comparison of the carrying amount of the asset to future undiscounted net cash flows expected to be generated by the asset.  If such assets are considered to be impaired, the impairment recognized was measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets.  Assets to be disposed of were reported at the lower of the carrying amount or fair value less costs to sell.

In fiscal 2007, the Company acquired customer relationships with third-party lease originators, which it classified as a customer related intangible asset.  The Company amortized this intangible asset over its expected useful life and monitored it for recoverability.  During fiscal 2010, the Company determined that this asset ceased to have future value and, accordingly, recorded a $2.8 million impairment loss for the remaining unamortized balance.

Derivative Instruments

As a result of the November 2011 LEAF Transaction, the derivative contracts held by LEAF were deconsolidated from the Company's consolidated balance sheets.

Historically, LEAF entered into derivative contracts, including interest rate swaps, to add stability to its financing costs and to manage its exposure to interest rate movements or other identified risks, which it designated as cash flow hedges.  The contracts or hedge instruments were evaluated at inception and at subsequent balance sheet dates to determine if they continued to qualify for hedge accounting and, accordingly, derivatives were recognized on the consolidated balance sheets at fair value, as either assets or liabilities.  Changes in the estimated fair value of these derivatives were reflected in Accumulated Other Comprehensive Income (Loss) to the extent that it was effective.  Any ineffective portion of a derivative’s change in fair value was recognized in earnings.

Before it entered into a derivative transaction for hedging purposes, LEAF would determine whether a high degree of initial effectiveness existed between the change in the value of the hedged forecasted transaction and the change in the value of the derivative from a movement in interest rates.  LEAF measured the effectiveness of each cash flow hedge throughout the hedge period.  Any hedge ineffectiveness on cash flow hedging relationships was recognized in earnings.

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Recent Accounting Standards

Newly-Adopted Accounting Principle

Comprehensive income (loss). In June 2011, the Financial Accounting Standards Board (“FASB”) issued an amendment to eliminate the option to present components of other comprehensive income (loss) as part of the statement of changes in stockholders' equity. The amendment requires that all non-owner changes in stockholders' equity be presented either in a single continuous statement of comprehensive income (loss) or in two separate but consecutive statements. In the two-statement approach, the first statement should present total net income (loss) and its components followed consecutively by a second statement that should present total other comprehensive income (loss), the components of other comprehensive income (loss), and the total of comprehensive income (loss). In December 2011, the FASB updated the guidance to defer the requirement related to the presentation of reclassification adjustments. The Company early adopted this disclosure requirement and has included the Statements of Comprehensive Income (Loss).

The Company’s adoption of the following standard during fiscal 2012 did not have a material impact on its consolidated financial position, results of operations or cash flows:

Fair value measurements. In May 2011, the FASB issued an amendment to revise the wording used to describe the requirements for measuring fair value and for disclosing information about fair value measurements. For many of the requirements, the FASB did not intend for the amendments to result in a change in the application of the current requirements. Some of the amendments clarify the FASB's intent about the application of existing fair value measurement requirements, such as specifying that the concepts of highest and best use and valuation premise in a fair value measurement are relevant only when measuring the fair value of nonfinancial assets. Other amendments change a particular principle or requirement for measuring fair value or for disclosing information about fair value measurements such as specifying that, in the absence of a Level 1 input, a reporting entity should apply premiums or discounts when market participants would do so when pricing the asset or liability. This guidance became effective for the Company beginning January 1, 2012 and, accordingly, the Company has presented the required disclosures (see Note 21).

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NOTE 4 – SUPPLEMENTAL CASH FLOW INFORMATION

Supplemental disclosure of cash flow information for the fiscal years ended September 30 are as follows (in thousands):

	September 30,
	2012			2011			2010
Cash (paid) received:	(Restated)			(Restated)
Interest	$	(3,889	)	$	(9,926	)	$	(9,433	)
Income tax payments	(1,424		)	(964		)	(1,325		)
Refund of income taxes	109			596			2,860
Dividends declared per common share	$	0.12		0.12			0.09
Non-cash activities:
Repurchases of common stock from employees in exchange for the payment of income taxes and option exercises	$	1,718		$	113		$	54
Issuance of treasury stock for the Company's investment savings plan	539			730			1,091
Common stock issued to former director in exchange for vested director units	135			—			—
Warrants issued and recorded as a discount to the Senior Notes	—			—			2,339
Leasehold improvements paid by the landlord	—			—			668
Sale of commercial finance assets to RSO:
Reduction of investments in commercial finance assets	$	—		$	—		$	99,386
Termination of associated secured warehouse facility	—			—			(99,386		)
Effects from the deconsolidation of entities:(1)
Restricted cash	$	20,282		$	—		$	—
Receivables from managed entities and related parties, net	(2,696		)	—			—
Receivables	954			—			9
Investments in commercial finance, net	199,955			—			—
Investments in unconsolidated entities	5,225			—			—
Property and equipment, net	3,754			—			1,638
Deferred tax assets, net	4,558			—			—
Goodwill	7,969			—			—
Other assets	6,826			—			755
Accrued expense and other liabilities	(11,146		)	—			(174		)
Payables to managed entities and related parties	(98		)	—			—
Borrowings	(202,481		)	—			(1,013		)
Accumulated other comprehensive loss	255			—			—
Noncontrolling interests	(37,668		)	—			—
Equity	—			—			(1,258		)

(1) Reflects the deconsolidation of LEAF and Apidos during fiscal 2012 and a real estate and two financial fund management partnerships during fiscal 2010. As a result of the deconsolidation of these entities, the amounts noted above were removed from the Company’s consolidated balance sheets.  The sum of the assets removed and cash equated to the sum of the liabilities and equity that were similarly eliminated and, as such, there was no change in the Company’s total net assets.

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NOTE 5– FINANCING RECEIVABLES

The following table is the aging of the Company’s past due financing receivables (presented gross of allowance for credit losses) as of September 30, 2012 (in thousands):

	30-89 Days Past Due		Greater than 90 Days		Greater than 181 Days		Total Past Due		Current		Total
Receivables from managed entities     and related parties: (1)
Commercial finance     investment entities	$	—	$	—	$	38,834	$	38,834	$	148	$	38,982
Real estate investment entities	743		2,694		15,180		18,617		2,054		20,671
Financial fund management entities	6		—		46		52		2,141		2,193
Other	—		—		—		—		152		152
	749		2,694		54,060		57,503		4,495		61,998
Rent receivables - real estate	6		1		32		39		6		45
Total financing receivables	$	755	$	2,695	$	54,092	$	57,542	$	4,501	$	62,043

(1) Receivables are presented gross of an allowance for credit losses of $25.1 million and $2.5 million related to the Company’s commercial finance and real estate investment entities, respectively.  The remaining receivables from managed entities and related parties have no related allowance for credit losses.

The following table is the aging of the Company’s past due financing receivables (presented gross of allowance for credit losses) as of September 30, 2011 (in thousands):

	30-89 Days Past Due		Greater than 90 Days		Greater than 181 Days		Total Past Due		Current		Total
Receivables from managed entities    and related parties: (1)
Commercial finance investment entities	$	—	$	—	$	37,547	$	37,547	$	490	$	38,037
Real estate investment entities	1,314		1,511		17,405		20,230		1,697		21,927
Financial fund management entities	2,395		93		28		2,516		24		2,540
Other	—		—		—		—		103		103
	3,709		1,604		54,980		60,293		2,314		62,607
Investments in commercial finance	984		526		—		1,510		190,932		192,442
Rent receivables - real estate	1		11		—		12		3		15
Total financing receivables	$	4,694	$	2,141	$	54,980	$	61,815	$	193,249	$	255,064

(1) Receivables are presented gross of an allowance for credit losses of $8.3 million and $2.2 million related to the Company’s commercial finance and real estate investment entities, respectively.  The remaining receivables from managed entities and related parties have no related allowance for credit losses.

80

RESOURCE AMERICA, INC.

NOTES TO RESTATED CONSOLIDATED FINANCIAL STATEMENTS − (Continued)

SEPTEMBER 30, 2012

The following table summarizes the activity in the allowance for credit losses for all financing receivables (in thousands):

			Investments in Commercial Finance
	Receivables from Managed Entities		Leases and Loans			Future Payment Card Receivables			Rent Receivables		Investment in Real Estate Loans			Total
Year Ended September 30, 2012:
Balance, beginning of year	$	10,490	$	430		$	—		$	15	$	—		$	10,935
Provision for credit losses	17,090		138			—			18		—			17,246
Charge-offs	—		(124		)	—			—		—			(124		)
Recoveries	—		38			—			—		—			38
Deconsolidation of LEAF	—		(482		)	—			—		—			(482		)
Balance, end of year	$	27,580	$	—		$	—		$	33	$	—		$	27,613
Ending balance, individually evaluated for impairment	$	27,580	$	—		$	—		$	33	$	—		$	27,613
Ending balance, collectively evaluated for impairment	—		—			—			—		—			—
Balance, end of year	$	27,580	$	—		$	—		$	33	$	—		$	27,613
Year Ended September 30, 2011:
Balance, beginning of year	$	1,075	$	770		$	130		$	—	$	49		$	2,024
Provision for credit losses	9,415		1,137			94			15		—			10,661
Charge-offs	—		(1,764		)	(286		)	—		(49		)	(2,099		)
Recoveries	—		287			62			—		—			349
Balance, end of year	$	10,490	$	430		$	—		$	15	$	—		$	10,935
Ending balance, individually evaluated for impairment	$	10,490	$	—		$	—		$	15	$	—		$	10,505
Ending balance, collectively evaluated for impairment	—		430			—			—		—			430
Balance, end of year	$	10,490	$	430		$	—		$	15	$	—		$	10,935

81

RESOURCE AMERICA, INC.

NOTES TO RESTATED CONSOLIDATED FINANCIAL STATEMENTS − (Continued)

SEPTEMBER 30, 2012

							Investments in Commercial Finance
	Receivables from Managed Entities			Investment in Loans			Leases and Loans			Future Payment Card Receivables			Investment in Real Estate Loans			Total
Year Ended September 30, 2010:
Balance, beginning of year	$	—		$	—		$	570		$	2,640		$	1,585		$	4,795
Provision for credit losses	1,852			1			2,860			447			49			5,209
Charge-offs	(777		)	(1		)	(2,721		)	(2,983		)	(1,585		)	(8,067		)
Recoveries	—			—			61			26			—			87
Balance, end of year	$	1,075		$	—		$	770		$	130		$	49		$	2,024

The Company’s financing receivables (presented exclusive of any allowance for credit losses) as of September 30, 2012 relate to the balance in the allowance for credit losses, as follows (in thousands):

	Receivables from Managed Entities		Rent Receivables		Total
Ending balance, individually evaluated for impairment	$	61,998	$	45	$	62,043
Ending balance, collectively evaluated for impairment	—		—		—
Balance, end of year	$	61,998	$	45	$	62,043

The Company’s financing receivables (presented exclusive of any allowance for credit losses) as of September 30, 2011 relate to the balance in the allowance for credit losses, as follows (in thousands):

	Receivables from Managed Entities		Rent Receivables		Commercial Finance Leases and Loans		Total
Ending balance, individually evaluated for impairment	$	62,607	$	15	$	—	$	62,622
Ending balance, collectively evaluated for impairment	—		—		192,442		$	192,442
Balance, end of year	$	62,607	$	15	$	192,442	$	255,064

The following table discloses information about the Company’s impaired financing receivables (in thousands):

	Net Balance		Unpaid Balance		Specific Allowance		Average Investment in Impaired Assets
As of September 30, 2012
Financing receivables with a specific valuation allowance:
Receivables from managed entities – commercial finance	$	12,865	$	37,943	$	25,078	$	38,060
Receivables from managed entities – real estate	2,181		4,683		2,502		4,511
Rent receivables – real estate	12		45		33		45
As of September 30, 2011:
Financing receivables with a specific valuation allowance:
Receivables from managed entities – commercial finance	$	14,990	$	23,302	$	8,312	$	23,377
Receivables from managed entities – real estate	2,353		4,531		2,178		3,897
Leases and loans	310		526		216		318
Rent receivables – real estate	—		15		15		7

The Company had no impaired financing receivables without a specific allowance as of September 30, 2012 and September 30, 2011.

82

RESOURCE AMERICA, INC.

NOTES TO RESTATED CONSOLIDATED FINANCIAL STATEMENTS − (Continued)

SEPTEMBER 30, 2012

NOTE 6 – INVESTMENTS IN COMMERCIAL FINANCE

As a result of the November 2011 deconsolidation of LEAF, the Company has no investments in commercial finance at September 30, 2012. The Company’s investments in commercial finance at September 30, 2011 included the following (in thousands):

	September 30, 2011
Direct financing leases, net	$	145,476
Equipment loans (1)	19,640
Assets subject to operating leases, net (2)	27,326
	192,442
Allowance for credit losses	(430		)
Total investments in commercial finance, net	$	192,012

(1) The interest rates on loans generally ranged from 6% to 18%.

(2) Reflected net of accumulated depreciation of $7.1 million.

The components of direct financing leases were as follows (in thousands):

	September 30, 2011
Total future minimum lease payments receivable	$	159,722
Initial direct costs, net of amortization	2,034
Unguaranteed residuals	8,666
Security deposits	(120		)
Unearned income	(24,826		)
Total investments in direct financing leases, net	$	145,476

83

RESOURCE AMERICA, INC.

NOTES TO RESTATED CONSOLIDATED FINANCIAL STATEMENTS − (Continued)

SEPTEMBER 30, 2012

NOTE 7 – INVESTMENTS IN REAL ESTATE

The Company’s investments in real estate, net, consist of the following (in thousands):

	September 30,
	2012		2011
Properties owned, net of accumulated depreciation of $5,592 and $4,785:
Hotel property (Savannah, Georgia)	$	11,619	$	12,051
Office building (Philadelphia, Pennsylvania)	906		3,165
	12,525		15,216
Commercial property (Elkins, West Virginia), net of accumulated depreciation of $784 and $656	727		944
Partnerships and other investments	5,897		3,782
Total investments in real estate, net	$	19,149	$	19,942

Based on an internal assessment of fair value, the Company determined that the office building was impaired and, accordingly, recorded a charge of $2.2 million in fiscal 2012.

The commercial property, consolidated through a VIE, was sold in November 2012.

The contractual future minimum rental income on non-cancelable operating leases included in properties owned for each of the five succeeding annual periods ending September 30, and thereafter, are as follows (in thousands):

2013	$	966
2014	902
2015	799
2016	537
2017	453
Thereafter	772
	$	4,429

NOTE 8 − INVESTMENT SECURITIES

Components of investment securities are as follows (in thousands):

	September 30,
	2012		2011
Available-for-sale securities	$	3,966	$	2,492
Trading securities	3,064		240
Total investment securities, at fair value	$	7,030	$	2,732

Available-for-sale securities.  The following table discloses the pre-tax unrealized gains (losses) relating to the Company’s investments in available-for-sale securities (in thousands):

	Cost or Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
September 30, 2012:
Equity securities	$	109	$	86	$	—		$	195
CLO securities	2,484		1,302		(15		)	3,771
Total	$	2,593	$	1,388	$	(15	)	$	3,966
September 30, 2011:
Equity securities	$	109	$	27	$	—		$	136
CDO securities	1,039		1,317		—			2,356
Total	$	1,148	$	1,344	$	—		$	2,492

RESOURCE AMERICA, INC.

NOTES TO RESTATED CONSOLIDATED FINANCIAL STATEMENTS − (Continued)

SEPTEMBER 30, 2012

Equity securities.  The Company holds 18,972 shares of TBBK common stock.  This investment is pledged as collateral for one of the Company’s secured corporate credit facilities.

CLO securities.  The CLO securities represent the Company’s retained equity interest in four and three CLO issuers that it has sponsored and manages at September 30, 2012 and 2011, respectively.  The fair value of these retained interests is impacted by the fair value of the investments held by the respective CLO issuers, which are sensitive to interest rate fluctuations and credit quality determinations. The Company is required to maintain a minimum investment of $2.0 million (par value) in the subordinated notes of Apidos CLO II.

Trading securities.  The Company purchased investment securities classified as trading securities during fiscal 2012. The Company had net unrealized gains on these securities totaling $1.1 million and realized gains from sales of trading securities of $909,000 during fiscal 2012, which were included in Financial Fund Management Revenues on the consolidated statements of operations.

The Company held 33,509 shares of TBBK common stock valued at $240,000 in a Rabbi Trust for the Supplemental Employment Retirement Plan (“SERP”) for its former Chief Executive Officer as of September 30, 2011. During fiscal 2012 and 2011, the Company sold 33,509 and 90,210 shares and recognized net gains of $22,000 and $186,000, respectively.  In addition, the Company had an unrealized trading gain of $16,000 for fiscal 2011 on the TBBK shares it held in the plan. The plan no longer holds any shares of TBBK as of September 30, 2012.

Unrealized losses along with the related fair value and aggregated by the length of time the investments were in a continuous unrealized loss position, are as follows (in thousands, except number of securities):

	Less than 12 Months						More than 12 Months
	Fair Value		Unrealized Losses			Number of Securities	Fair Value		Unrealized Losses		Number of Securities
September 30, 2012:
CLO securities	$	1,274	$	(15	)	1	$	—	$	—	—
September 30, 2011:
CLO securities	$	—	$	—		—	$	—	$	—	—

Other-than-temporary impairment losses.  In fiscal 2012, 2011 and 2010, the Company recorded charges of $74,000, $0 and $480,000, respectively, for the other-than-temporary impairment of certain of its investments in CLOs, primarily those with investments in bank loans, financial institutions, and real estate ABS (which includes RMBS and CMBS).  Additionally, in fiscal 2010, the Company recorded a $329,000 charge for the other-than-temporary impairment of its investment in TBBK common stock held for the SERP as the Company determined it would begin to dispose of these securities commencing in fiscal 2011.  

NOTE 9 − INVESTMENTS IN UNCONSOLIDATED ENTITIES

As a specialized asset manager, the Company develops various types of investment vehicles, which it manages under long-term management agreements or similar arrangements.  The following table details the Company’s investments in these vehicles, including the range of ownership interests owned (in thousands, except percentages):

	Range of Combined Ownership Interests	September 30,
		2012		2011
Real estate investment entities	1% – 10%	$	8,043	$	8,439
Financial fund management partnerships	3% − 11%	3,983		3,476
Trapeza entities	33% − 50%	967		795
LEAF	14.9%	—		—
Commercial finance investment entities	2% − 7%	—		—
Investments in unconsolidated entities		$	12,993	$	12,710

85

RESOURCE AMERICA, INC.

NOTES TO RESTATED CONSOLIDATED FINANCIAL STATEMENTS − (Continued)

SEPTEMBER 30, 2012

Two of the Trapeza entities that have incentive distributions, also known as carried interests, are subject to a potential clawback to the extent that such distributions exceed the cumulative net profits of the entities, as defined in the respective partnership agreements (see Note 22).  The general partner of those entities is equally owned by the Company and its co-managing partner.  Performance-based incentive fees in interim periods are recorded based upon a formula as if the contract were terminated at that date.  On a quarterly basis (interim measurement date), the Company quantifies the cumulative net profits/net losses (as defined under the Trapeza partnership agreements) and allocates income/loss to the limited and general partners according to the terms of such agreements.

Investment in Unconsolidated Loan Manager. Until the Company sold its Apidos business to CVC on April 17, 2012, the operations of Apidos were included in the Company's consolidated results. Thereafter, the Company has recorded its 33% equity share of the results of the newly-formed joint venture, CVC Credit Partners, which includes the Apidos operations, in Financial Fund Management Revenues on the Consolidated Statements of Operations.

NOTE 10 − PROPERTY AND EQUIPMENT

Property and equipment, net, consist of the following (in thousands):

	Estimated Useful Life	September 30,
		2012			2011
Furniture and equipment	3-7 years	$	6,123		$	5,620
Leasehold improvements	1-8 years	2,377			2,656
LEAF property and equipment		—			11,939
		8,500			20,215
Accumulated depreciation and amortization		(5,768		)	(5,183		)
Accumulated depreciation and amortization - LEAF		—			(8,034		)
Property and equipment, net		$	2,732		$	6,998

NOTE 11 − INTANGIBLE ASSETS

In the fourth quarter of fiscal 2010, the Company recognized a $2.8 million impairment loss for customer lists acquired by its commercial finance operating segment due to the decline in the estimated future cash inflows to be generated by the acquired customer base. Amortization of intangible assets totaled $809,000 for fiscal 2010.

NOTE 12 − ACCRUED EXPENSES AND OTHER LIABILITIES

The following is a summary of the components of accrued expenses and other liabilities (in thousands):

	September 30,
	2012		2011
Accounts payable and other accrued liabilities	$	8,627	$	8,153
SERP liability (see Note 19)	6,976		7,049
Accrued wages and benefits	5,396		3,617
Trapeza clawback (see Note 22 )	1,181		1,181
Real estate loan commitment	862		2,147
Due to brokers	—		8,254
LEAF accounts payable and accrued liabilities	—		10,486
Total accrued expenses and other liabilities	$	23,042	$	40,887

86

RESOURCE AMERICA, INC.

NOTES TO RESTATED CONSOLIDATED FINANCIAL STATEMENTS − (Continued)

SEPTEMBER 30, 2012

NOTE 13 – BORROWINGS

The credit facilities and other debt of the Company and related borrowings outstanding are as follows (in thousands): 

	As of September 30, 2012				September 30, 2011
	Maximum Amount of Facility		Borrowings Outstanding		Borrowings Outstanding
Corporate and Real Estate:
TD Bank – secured revolving credit facility (1)	$	6,997	$	—	$	7,493
TD Bank – term loan	—		—		1,250
Republic Bank – secured revolving credit facility	3,500		—		—
			—		8,743
Senior Notes (2)			10,000		16,263
Mortgage debt			10,531		10,700
Other debt			812		548
Total corporate and real estate borrowings			21,343		36,254
Commercial Finance debt			—		177,800
Total borrowings outstanding			$	21,343	$	214,054

(1) The amount of the facility as shown has been reduced for outstanding letters of credit of $503,000 at September 30, 2012 and 2011.

(2) The September 30, 2011 balance shown is net of an unamortized discount of $2.6 million related to the fair value of detachable warrants issued to the note holders. In conjunction with the refinancing of the Senior Notes in November 2011, the remaining unamortized discount was charged off to Loss on Extinguishment of Debt in the consolidated statements of operations.

Corporate and Real Estate Debt

TD Bank, N.A. (“TD Bank”).  On November 19, 2012, the Company amended its agreement to extend the maturity of the TD Bank facility to December 31, 2014, to set the interest rate on borrowings as either (a) the prime rate of interest plus 2.25% or (b) London Interbank Offered Rate ("LIBOR") plus 3% and to eliminate the previous floor of 6.0%. The LIBOR rate varies from one to six months depending upon the period of the borrowing at the Company's election. The Company is charged an annual fee of 0.5% on the unused facility amount as well as a 5.25% fee on the $503,000 of outstanding letters of credit.

Borrowings are secured by a first priority security interest in certain of the Company's assets and the guarantees of certain subsidiaries, including (i) the present and future fees and investment income earned in connection with the management of, and investments in, sponsored CDO issuers, (ii) a pledge of 18,972 shares of TBBK common stock, and (iii) the pledge of 1,935,337 shares of RSO common stock.  Availability under the facility is limited to the lesser of (a) 75% of the net present value of future RSO base management fees to be earned or (b) the maximum revolving credit facility amount.

There were no borrowings outstanding as of September 30, 2012 on the secured credit facility and the availability on the revolving line of credit portion of the facility was $7.0 million, as reduced for letters of credit. During fiscal 2012, the Company repaid the outstanding term loan portion of the credit facility in the amount of $1.3 million. Weighted average borrowings on the line of credit for fiscal 2012 and 2011 were $3.7 million and $10.1 million, respectively, at a weighted average borrowing rate of 6.0% and 6.6%, respectively, with an effective interest rate (inclusive of amortization of deferred issuance costs) of 12.0% and 10.5%, respectively. Weighted average borrowings for the term note for fiscal 2012 were $194,000 at a weighted average borrowing rate of 6.0% and an effective interest rate of 38.2% (reflecting the accelerated amortization of deferred finance costs). Weighted average borrowings for the term note for fiscal 2011 were $1.7 million, at a weighted average borrowing rate of 6.0%, with an effective interest rate (inclusive of amortization of deferred issuance costs) of 12.9%.

87

RESOURCE AMERICA, INC.

NOTES TO RESTATED CONSOLIDATED FINANCIAL STATEMENTS − (Continued)

SEPTEMBER 30, 2012

Republic First Bank (“Republic Bank”). In February 2011, the Company entered into a $3.5 million revolving credit facility with Republic Bank.  The facility bears interest at the prime rate of interest plus 1% with a floor of 4.5%.  The loan is secured by a pledge of 700,000 shares of RSO stock and a first priority security interest in certain real estate collateral located in Philadelphia, Pennsylvania.  Availability under this facility is limited to the lesser of (a) the sum of (i) 25% of the appraised value of the real estate, based upon the most recent appraisal delivered to the bank and (ii) 100% of the cash and 75% of the market value of the pledged RSO shares held in the pledged account; and (b) 100% of the cash and 100% of the market value of the pledged RSO shares held in the pledged account.  In January 2012, the Company amended this facility to extend the maturity date from December 28, 2012 to December 1, 2013 and to add an unused annual facility fee equal to 0.25%. In November 2013, the Company further amended this facility to extend the maturity date to December 28, 2016 and increase the unused fee to 0.50%. There were no borrowings under this facility during fiscal 2012 and 2011 and the availability as of September 30, 2012 was $3.5 million.

Senior Notes

In November 2011, the Company redeemed $8.8 million of its Senior Notes for cash and modified the terms of the remaining $10.0 million of notes to reduce the interest rate to 9% from 12% and to extend the maturity to October 2013. The maturity date was further extended to March 31, 2015 in December 2012. The detachable 5-year warrants to purchase 3,690,195 shares of common stock issued with the original notes remain outstanding. The Company accounted for the warrants as a discount to the original Senior Notes. Upon the modification and partial repayment of the Senior Notes, the Company expensed the remaining $2.2 million of unamortized discount. The effective interest rate (inclusive of the discount for the warrants) for fiscal 2012 and 2011 was 13.2% and 22.2%, respectively.

Other Debt - Real Estate and Corporate

Real estate−mortgage. In August 2011, the Company obtained a $10.7 million mortgage for its hotel property in Savannah, Georgia.  The 6.36% fixed rate mortgage, which matures in September 2021, requires monthly principal and interest payments of $71,331.  The principal balance as of September 30, 2012 and 2011 was $10.5 million and $10.7 million, respectively.

Corporate − term notes. In August 2012, the Company entered into two term notes totaling $546,000 to finance the payment of various insurance policy premiums. The notes are secured by the return premiums, dividend payments and certain loss payments of the insurance policies and require nine monthly principal and interest payments of $61,508. The principal balance outstanding at September 30, 2012 was $487,000.

Corporate - capital lease. In December 2011, the Company entered into a capital lease for the purchase of computer equipment at an interest rate of 7.2%. The two-year lease requires monthly payments of $22,697. The principal balance of the lease at September 30, 2012 was $325,000.

Terminated and/or Transferred Facilities and Loans

Commercial Finance Debt. Due to the November 2011 LEAF Transaction and resulting deconsolidation of LEAF, the Company's commercial finance debt is no longer included in the Company's consolidated financial statements.

Securitization of leases and loans. On October 28, 2011, LEAF completed a $105.0 million securitization. A subsidiary of LEAF issued eight classes of notes which are asset-backed debt, secured and payable by certain assets of LEAF. The notes included interest rates ranging from 0.4% to 5.5%, rated by both Dominion Bond Rating Service, Inc. (“DBRS”) and Moody's Investors Services, Inc., and mature from October 2012 to March 2019. The weighted average borrowings for the period from October 1 to November 16, 2011 were $42.7 million, at a weighted average borrowing rate of 2.6% and an effective interest rate (inclusive of amortization of deferred financing costs and interest rate swaps) of 5.6%.

88

RESOURCE AMERICA, INC.

NOTES TO RESTATED CONSOLIDATED FINANCIAL STATEMENTS − (Continued)

SEPTEMBER 30, 2012

Guggenheim Securities LLC (“Guggenheim”). At December 31, 2010, LEAF Financial had a short-term bridge loan with Guggenheim for borrowings up to $21.8 million. The bridge facility was repaid in January 4, 2011 and terminated on February 28, 2011. Beginning in January 2011, Guggenheim provided LEAF with a revolving warehouse credit facility with availability up to $110.0 million and committed to further expand the borrowing limit to $150.0 million. LEAF, through its wholly-owned subsidiary, issued to Guggenheim, as initial purchaser, six classes of DBRS-rated variable funding notes, with ratings ranging from “AAA” to “B”, for up to $110.0 million.  The notes were secured and payable only from the underlying equipment leases and loans.  Interest was calculated at a rate of 30-day LIBOR plus a margin rate applicable to each class of notes. The revolving period of the facility ends on December 31, 2012 and the stated maturity of the notes is December 15, 2020, unless there is a mutual agreement to extend. Principal payments on the notes are required to begin when the revolving period ends. The Company was not an obligor or a guarantor of these securities and the facility was non-recourse to the Company. The weighted average borrowings for the period from October 1 to November 16, 2011 (prior to the LEAF deconsolidation) were $68.8 million, at a weighted average borrowing rate of 4.2% and an effective interest rate of 5.1%. The weighted average borrowings for fiscal 2011 were $40.4 million, at a weighted average rate of 4.1% and an effective interest rate (inclusive of amortization of deferred financing costs and interest rate swaps) of 5.1% . The weighted average borrowings on the bridge loan for fiscal 2011 was $8.7 million, at a weighted average rate of 6.8% and an effective interest rate of 9.2%.

Series 2010-2 term securitization. In May 2010, LEAF Receivables Funding 3, LLC, a subsidiary of LEAF (“LRF3”), issued $120.0 million of equipment contract-backed notes (“Series 2010-2”) to provide financing for leases and loans.  In the connection with the formation of LEAF in January 2011, RSO contributed the Series 2010-2 notes, along with the underlying lease portfolio, to LEAF. LRF3 is the sole obligor on these notes. The weighted average borrowings for the period from October 1 to November 16, 2011 were $70.1 million at a weighted average borrowing rate of 5.1% and an effective interest rate of 8.5%. The weighted average borrowings during fiscal 2011 were $62.5 million, at a weighted average rate of 5.4%, with an effective interest rate (inclusive of amortization of debt discount and deferred issuance costs) of 8.7% .

Mortgage.  In November 2007, in conjunction with the acquisition of an equipment leasing company, LEAF entered into a $1.5 million first mortgage due December 2037 on an office building in Moberly, Missouri.  The 8% mortgage, with an outstanding balance of $1.4 million at September 30, 2011, required monthly payments of principal and interest of $11,000.

Capital leases.  LEAF had entered into various capital leases for the purchase of equipment at interest rates ranging from 5.1% to 7.4% and terms ranging from three to five years.  The principal balance of these leases at September 30, 2011 was $114,000.

Corporate Debt− term notes.  In August and September 2011, the Company entered into two term notes totaling $615,000 to finance the payment of various insurance policy premiums.  The notes were secured by the return premiums, dividend payments and certain loss payments of the insurance policies and required nine monthly principal and interest payments of $69,773 and were fully repaid in May 2012.

In August 2010, the Company entered into two term notes totaling $901,000 to finance the payment of various insurance policy premiums. The notes required nine monthly principal and interest payments of $102,200 and were fully repaid in May 2011.

In September 2008, the Company entered into a three-year unsecured term note for $473,000 to finance the purchase of software.  The loan, which required 36 monthly principal and interest payments of $14,200, matured and was fully repaid in September 2011.

Capital leases.  The Company had entered into various capital leases for the purchase of equipment at interest rates ranging from 6.9% to 7.2% and terms ranging from two years to three years.  The leases matured and were paid in full during fiscal 2011.

89

RESOURCE AMERICA, INC.

NOTES TO RESTATED CONSOLIDATED FINANCIAL STATEMENTS − (Continued)

SEPTEMBER 30, 2012

Debt repayments

Annual principal payments on the Company’s aggregate borrowings for the next five fiscal years ending September 30, and thereafter, are as follows (in thousands):

2013	$	904
2014	10,284
2015	207
2016	219
2017	235
Thereafter	9,494
	$	21,343

Covenants

The TD Bank credit facility is subject to certain financial covenants, which are customary for the type and size of the facility, including debt service coverage and debt to equity ratios. The debt to equity ratio restricts the amount of recourse debt the Company can incur based on a ratio of recourse debt to net worth.

The mortgage on the Company's hotel property contains financial covenants related to the net worth and liquid assets of the Company. Although non-recourse in nature, the loan is subject to limited standard exceptions (or “carveouts”) which the Company has guaranteed.  These carveouts will expire as the loan is paid down over the next ten years.  The Company has control over the operations of the underlying property, which mitigates the potential risk associated with these carveouts and, accordingly, no liabilities for these obligations have been recorded in the consolidated financial statements.  To date, the Company has not been required to make any carveout payments.

The Company was in compliance with all of its financial debt covenants as of September 30, 2012.

NOTE 14 – COMPREHENSIVE INCOME (LOSS)

Comprehensive income (loss) includes net income (loss) and all other changes in the equity of a business from transactions and other events and circumstances from non-owner sources.  These changes, other than net income (loss), are referred to as “other comprehensive income (loss)” and for the Company include primarily changes in the fair value, net of tax, of its investment securities available-for-sale and pension liability.  Other comprehensive income (loss) also includes the Company’s share of unrealized losses on hedging contracts held by the commercial finance investment partnerships and LEAF.        

The following are changes in accumulated other comprehensive income (loss) by category (in thousands):

	Investment Securities Available-for-Sale		Cash Flow Hedges			Foreign Currency Translation Adjustments			SERP Pension Liability			Total
Balance, October 1, 2010 (as restated), net of tax of $279, $(146), $0 and $(1,966)	$	447	$	(171	)	$	(368	)	$	(2,507	)	$	(2,599	)
Changes during fiscal 2011	376		(51		)	368			(463		)	230
Balance, September 30, 2011, net of tax of $519, $(202), $0 and $(2,271)	823		(222		)	—			(2,970		)	(2,369		)
Changes during fiscal 2012	17		200			—			(74		)	143
Balance, September 30, 2012, net of tax of $533, $(15), $0 and $(2,329)	$	840	$	(22	)	$	—		$	(3,044	)	$	(2,226	)

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SEPTEMBER 30, 2012

NOTE 15 – DERIVATIVE INSTRUMENTS

As of September 30, 2012, the Company does not directly engage in derivative activities. As of September 30, 2012, included in Accumulated Other Comprehensive Income (Loss) were net unrealized losses of $13,000 (net of tax benefit of $9,000) related to the Company's equity interests in the hedging activity of LEAF. As of September 30, 2011, included in accumulated other comprehensive loss were unrealized net losses of $181,000 (net of tax benefit and noncontrolling interests of $223,000) related to four LEAF interest rate swap contracts.

In addition, included in accumulated other comprehensive loss as of September 30, 2012 and 2011 is a net unrealized loss of $9,000 (net of tax benefit of $6,000) and $41,000 (net of tax benefit of $28,000) for instruments held by the commercial finance investment funds in which the Company owns an equity interest. The Company recognized no gains or losses during fiscal 2011 for hedge ineffectiveness.

Prior to the deconsolidation of LEAF, the Company’s investments in commercial finance assets had been structured on a fixed-rate basis, but some of the borrowings on those assets were obtained on a floating-rate basis.  As a result, the Company was exposed to risk if interest rates rose, which in turn, would have increased the Company’s borrowing costs.  In addition, when the Company acquired commercial finance assets, it based its pricing, in part, on the spread it expected to achieve between the interest rate it charged its customers and the effective interest cost the Company paid when it funded the respective borrowings.  Increases in interest rates that increased the Company’s permanent funding costs between the time the assets were originated and the time they were funded could have narrowed, would have eliminated or even reversed this spread.  In conjunction with the securitization of its commercial finance assets in October 2011, three of the four outstanding swap contracts were terminated.

Historically, to manage its interest rate risk, LEAF employed a hedging strategy using derivative financial instruments such as interest rate swaps, which were designated as cash flow hedges.  Accordingly, changes in fair value of those derivatives were recorded in accumulated other comprehensive loss and were subsequently reclassified into earnings when the hedged forecasted interest payments were recognized in earnings.  LEAF did not use derivative financial instruments for trading or speculative purposes.  LEAF managed the credit risk of possible counterparty default in the derivative transactions by dealing exclusively with counterparties with high credit quality.  As of September 30, 2011, the fair value of derivatives in a net liability position related to these agreements was $404,000, net of accrued interest, and for which LEAF had posted $300,000 in cash collateral as security for any unfunded liability.

Derivative instruments were reported at fair value as of September 30, 2011 as follows (in thousands, except number of contracts):

	Notional Amount		Termination Date of Swap	Derivative Liability Reported in Accrued Expenses and Other Liabilities		Number of Contracts
Interest rate swaps designated as cash flow hedges	$	60,615	March 15, 2015	$	404	4

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NOTES TO RESTATED CONSOLIDATED FINANCIAL STATEMENTS − (Continued)

SEPTEMBER 30, 2012

NOTE 16 – NONCONTROLLING INTERESTS

The following table presents the activity in noncontrolling interests during fiscal 2012 (in thousands):

	RSO			RAI
Noncontrolling interests, October 1, 2011	$	398,377		$	(1,269	)
Net income attributable to noncontrolling interests	62,520			(223		)
Other comprehensive income	19,249			49
Proceeds from issuance of stock, net	170,928			—
Amortization of stock based compensation	4,636			—
Distributions to noncontrolling interests	(74,243		)	(80		)
Deconsolidation of LEAF	—			1,648
Other	(17		)	83
Noncontrolling interest, September 30, 2012	$	581,450		$	208

The following table presents the activity in noncontrolling interests during fiscal 2011 (in thousands):

	RSO			RAI
Noncontrolling interests, October 1, 2010 (as restated)	$	316,588		$	(2,873	)
Net income (loss) attributable to noncontrolling interests	36,283			(2,111		)
Other comprehensive income	(12,409		)	(24		)
Proceeds from issuance of stock, net	129,911			—
Amortization of stock based compensation	2,526			40
Distributions to noncontrolling interests	(72,837		)	—
Related party debt forgiveness	(1,552		)	—
Other	(133		)	1
Exchange of LEAF Financial common stock held by management for LEAF common stock	—			3,467
LEAF common stock issuance costs	—			(221		)
Warrants issued to Guggenheim	—			452
Noncontrolling interests, September 30, 2011	$	398,377		$	(1,269	)

NOTE 17 - INCOME TAXES

The following table details the allocation of the Company's provision (benefit) for income taxes from continuing operations between RAI and RSO:

	Fiscal Years Ended September 30,
	2012		2011			2010
RAI	$	13,512	$	(4,607	)	(2,650		)
RSO	14,602		12,036			—
Total	$	28,114	$	7,429		$	(2,650	)

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SEPTEMBER 30, 2012

The following table details the components of the Company's provision (benefit) for income taxes from continuing operations excluding RSO (in thousands): 

	Fiscal Years Ended September 30,
	2012			2011			2010
Current tax provision:
Federal	$	—		$	51		$	1,379
State	959			574			535
Foreign	44			425			—
Total current tax provision	1,003			1,050			1,914
Deferred tax provision (benefit)
Federal	13,787			(4,668		)	(5,795		)
State	(1,278		)	(2,056		)	(223		)
Foreign	—			1,067			1,454
Total deferred tax provision (benefit)	12,509			(5,657		)	(4,564		)
Total income tax provision (benefit)	$	13,512		$	(4,607	)	$	(2,650	)

A reconciliation between the federal statutory income tax rate and the Company's effective income tax rate excluding RSO is as follows:

	Fiscal Years Ended September 30,
	2012		2011		2010
Statutory tax rate	35	%	35	%	35	%
State and local taxes, net of federal benefit	2		13		12
Deconsolidation adjustment	(6	)	—		—
Return permanent adjustments	—		12		(7	)
Taxable foreign distributions	—		(6	)	—
Valuation allowance for deferred tax assets	2		(4	)	(18	)
Equity-based compensation expense	—		(3	)	(8	)
Other items	1		—		(1	)
	34	%	47	%	13	%

Deferred tax assets (liabilities) are provided for the effects of temporary differences between the tax basis of an asset or liability and its reported amount in the consolidated balance sheets.  These temporary differences will result in taxable or deductible amounts in future years.  The components of deferred tax assets, net, excluding RSO are as follows (in thousands):

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SEPTEMBER 30, 2012

	September 30,
	2012			2011
Deferred tax assets related to:
Federal, foreign, state and local operating loss carryforwards	$	23,225		$	23,594
Capital loss carryforwards	1,314			24,752
Unrealized loss on investments	2,118			2,164
Provision for credit losses	11,288			4,627
Accrued expenses	2,059			3,685
Employee equity compensation awards	906			1,242
Investments in real estate assets	1,076			41
Property and equipment basis differences	—			681
Gross deferred tax assets	41,986			60,786
Less:  valuation allowance	(5,812		)	(4,858		)
	36,174			55,928
Deferred tax liabilities related to:
Investments in partnership interests	(6,001		)	(12,013		)
Deferred income	(2,312		)	—
Property and equipment basis differences	(91		)	—
	(8,404		)	(12,013		)
Deferred tax assets, net	$	27,770		$	43,915

At September 30, 2012, the Company had gross federal ($38.5 million), state and local ($176.1 million) and foreign ($700,000) net operating tax loss carryforwards ("NOLs") of $215.3 million (deferred tax asset of $23.2 million) that will expire between fiscal 2012 and 2032.  The Company believes it will be able to utilize up to $112.2 million of these NOLs (tax effected benefit of $18.8 million) prior to their expiration and has changed its valuation allowance against gross NOLs from $80.1 million to $103.1 million (tax effected expense of $1.0 million).  In addition, the Company changed its valuation allowance against gross state timing differences of $1.0 million to $2.1 million (tax effected expense of $600,000) that the Company believes it will not be able to use.  Management will continue to assess its estimate of the amount of NOLs that the Company will be able to utilize.  Furthermore, its estimate of the required valuation allowance could be adjusted in the future if projections of taxable income are revised.  Management believes it is more likely than not that the other net deferred tax assets will be realized based on tax planning strategies that will generate future taxable income during the periods in which these temporary differences become deductible.  

The Company is subject to examination by the U.S. Internal Revenue Service (“IRS”) and by the taxing authorities in states in which the Company has significant business operations, such as Pennsylvania and New York.  The Company is currently undergoing a New York State examination for fiscal 2007 through 2009.  The Company is not subject to IRS examination for fiscal years before 2009 and is not subject to state and local income tax examinations for fiscal years before 2006.

NOTE 18 – EARNINGS (LOSS) PER SHARE

Basic earnings (loss) per share (“Basic EPS”) is computed using the weighted average number of common shares outstanding during the period, inclusive of nonvested share-based awards that are entitled to receive non-forfeitable dividends.  The diluted earnings (loss) per share (“Diluted EPS”) computation takes into account the effect of potential dilutive common shares.  Potential common shares, consisting primarily of outstanding stock options, warrants and director deferred shares, are calculated using the treasury stock method.

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SEPTEMBER 30, 2012

The following table presents a reconciliation of the shares used in the computation of Basic EPS and Diluted EPS (in thousands):

	Fiscal Year Ended
	September 30, 2012
Shares
Basic shares outstanding	19,740
Dilutive effect of outstanding stock options, warrants and director units	894
Dilutive shares outstanding	20,634

 For fiscal 2011 and 2010, the Basic EPS and Diluted EPS shares were the same because the impact of potential dilutive securities would have been antidilutive.  Accordingly, the following were excluded from the Diluted EPS computation as of September 30, 2011 and 2010: outstanding options to purchase 2.1 million and  2.5 million (weighted average price per share of $9.90 and $9.03), respectively, and warrants to purchase 3,690,000 shares of common shares (exercise price per share of $5.10).  Additionally as of September 30, 2010, there were 69,300 shares, respectively, of restricted stock outstanding (fair value of $16.42 per share) that did not participate in dividends with the common stock and, as such, were also excluded from the Diluted EPS calculation.

NOTE 19 - BENEFIT PLANS

Employee stock options.  As of September 30, 2012, the Company has four employee stock plans: the 1997 Plan, the 1999 Plan, the 2002 Plan and the 2005 Plan.  Equity awards from these plans generally become exercisable 25% per year after the date of grant but may vest immediately at management’s discretion and expire no later than ten years from the date of grant.

The employee stock plans allow for grants of the Company’s common stock in the form of incentive stock options (“ISOs”), non-qualified stock options, and stock appreciation rights.  Under the 2005 Plan, the Company may also grant restricted stock, stock units, performance shares, stock awards, dividend equivalents and other stock-based awards.  The Company does not record a tax benefit for option awards at the grant date since the options it issues are generally ISOs and employees have typically held the stock received on exercise for the requisite holding period.

The Company did not grant any options during fiscal 2012, 2011 or 2010.

At September 30, 2011 and 2010, the Company had unamortized compensation expense related to nonvested stock options of $45,000 and $202,000, respectively.  The balance of the unamortized compensation at September 30, 2011 was fully expensed during fiscal 2012.  For fiscal 2012, 2011 and 2010, the Company recorded option compensation expense of $45,000, $165,000 and $226,000, respectively.

Restricted stock.  During fiscal 2012, 2011 and 2010, the Company awarded a total of 33,143, 214,568 and 399,156 shares of restricted stock, respectively, valued at $214,000, $1.4 million and $1.7 million, respectively, and recorded compensation expense for outstanding restricted stock of $1.2 million, $1.9 million and $2.7 million (of which $38,000, $33,000 and $232,000 related to the accelerated vesting of awards for certain terminated employees), respectively.

In January 2011, in connection with the formation of LEAF, all of the outstanding restricted stock of LEAF Financial held by its senior management were exchanged for 1,000 shares of restricted stock of LEAF.  The Company recorded equity-based compensation expense related to the LEAF and LEAF Financial restricted stock of $94,000 and $57,000 for fiscal 2011 and 2010, respectively. No compensation expense was recorded for these shares for fiscal 2012.

Performance-based awards.  The Company issues performance-based awards which are earned based on the achievement of specified goals as of a designated measurement date.  The goals typically include such measures as earnings per share, return on equity, revenues and assets under management.  During fiscal 2012, 2011 and 2010, the Company awarded 0, 36,000, and 0 shares of performance-based restricted stock, respectively, and recorded compensation expense of $38,000, $0 and $96,000 during fiscal 2012, 2011 and 2010, respectively, related to performance awards that had been earned.  There were 6,000 nonvested earned performance-based restricted shares outstanding as of September 30, 2012 (none at September 30, 2011).

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NOTES TO RESTATED CONSOLIDATED FINANCIAL STATEMENTS − (Continued)

SEPTEMBER 30, 2012

Unearned Performance-based Restricted Stock	Shares
Outstanding, beginning of year	136,000
Awarded	—
Earned	(12,000	)
Forfeited	(100,000	)
Outstanding, end of year	24,000

Aggregate information regarding the Company’s employee stock options as of September 30, 2012 is as follows:

Stock Options Outstanding	Shares			Weighted Average Exercise Price			Weighted Average Contractual Life	Aggregate Intrinsic Value
Balance, beginning of year	2,083,215			$	9.90		2.5	$	1,636,000
Granted	—			$	—
Exercised	(1,034,738	)		$	(3.58	)
Forfeited and/or expired	(3,251	)		$	(19.06	)
Balance, end of year	1,045,226			$	16.12		3	$	21,594
Exercisable, September 30, 2012	1,045,226			$	—
Available for grant	861,296		(1)

(1) At the Company’s 2011 Annual Meeting, shareholders approved an 800,000 increase in the shares authorized for grant under the Company’s 2005 Plan.  The shares available for grant reflect this increase, as reduced by restricted stock award grants, net of forfeitures.

The following table summarizes the activity for nonvested employee stock options and restricted stock (excluding performance-based awards) during fiscal 2012:

	Shares		Weighted Average Grant Date Fair Value
Nonvested Stock Options
Outstanding, beginning of year	22,687		$	3.48
Granted	—		$	—
Vested	(22,687	)	$	(3.48	)
Forfeited and/or expired	—		$	—
Outstanding, end of year	—		$	—
Nonvested Restricted Stock
Outstanding, beginning of year	649,007		$	5.85
Granted	45,143		$	6.42
Vested and issued	(278,125	)	$	(6.86	)
Forfeited	(12,830	)	$	(4.77	)
Outstanding, end of year	403,195		$	5.23

Deferred stock and deferred compensationplans.  In addition to the employee stock plans, the Company has three plans for its non-employee directors (“Eligible Directors”), the 1997 Director Plan, the 2002 Director Plan, and the 2012 Director Plan.  Each unit granted under these plans represents the right to receive one share of the Company’s common stock.

The 1997 Director Plan has issued all of its authorized 173,450 units.  As of September 30, 2012 and 2011, there were 104,070 units vested and outstanding under this plan.

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SEPTEMBER 30, 2012

Eligible Directors are eligible to participate in the 2002 and 2012 Director Plans.  Upon becoming a director, each Eligible Director receives units equal to a share compensation amount divided by the closing price of the Company’s common stock on the date of grant.  Eligible Directors receive an additional unit award on each anniversary of the date of initial grant equal to their share compensation divided by the closing price of the Company’s common stock on the date of grant.  Units vest on the later of: (i) the fifth anniversary of the date the recipient became an Eligible Director and (ii) the first anniversary of the grant of those units, except that units will vest sooner upon a change in control or death or disability of an Eligible Director, provided the Eligible Director has completed at least six months of service.  Upon termination of service by an Eligible Director, shares of common stock are issued for vested units and all nonvested units are forfeited.

The 2002 Director Plan provides for the issuance of 173,450 units and terminated on April 29, 2012, such that the plan can no longer make any additional grants (grants outstanding remain unaffected). As of September 30, 2012, there were 130,956 units outstanding (of which 115,052 were vested) under the 2002 Director Plan.    

The 2012 Director Plan provides for the issuance of up to a maximum of 200,000 units and will terminate on March 8, 2022, except with respect to previously awarded grants. As of September 30, 2012, there were 9,654 units outstanding (none of which were vested) under the 2012 Director Plan.

Aggregate information regarding the Company’s three director plans at September 30, 2012 was as follows:

	Shares		Weighted Average Grant Date Fair Value
Director Units
Outstanding, beginning of year	238,737		$	6.56
Granted	30,255		$	5.95
Issued	(19,612	)	$	(6.88	)
Forfeited	(4,697	)	$	(4.79	)
Outstanding, end of year	244,683		$	6.38
Vested units	219,125		$	6.41
Available for grant	190,346

The following table summarizes the activity for outstanding nonvested director units during fiscal 2012:

	Shares		Weighted Average Grant Date Fair Value
Nonvested Director Units
Outstanding, beginning of year	34,115		$	6.38
Granted	30,255		$	5.95
Vested	(34,115	)	$	(6.38	)
Forfeited	(4,697	)	$	(4.79	)
Outstanding, end of year	25,558		$	6.16

Employee Stock Ownership Plan.  The Company had sponsored an Employee Stock Ownership Plan (“ESOP”) which was a qualified non-contributory retirement plan established to acquire shares of the Company’s common stock for the benefit of its employees who are 21 years of age or older, completed 1000 hours of service and were employed by the Company for one year.  Contributions to the ESOP were funded by the Company.   Vested shares held by the plan were distributed upon the termination of the participant’s employment with the Company.  The Company has terminated the ESOP and, in connection with this termination, distributed the remaining plan assets to participants and liquidated the ESOP trust in the fourth quarter of fiscal 2012.  There was no compensation expense recorded related to this plan during fiscal 2012, 2011 or 2010.

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SEPTEMBER 30, 2012

Employee 401(k) Plan.  The Company sponsors a qualified 401(k) Plan to enable employees to save for their retirement on a tax deferred basis.  Employees are eligible to make elective deferrals commencing on the first day of the month after their date of hire.  Prior to January 1, 2012, the Company matched 50% of such deferrals, limited to 10% of an employee’s annual compensation, after the completion of 1000 hours of service and having been employed by the Company for one year. The match earned prior to January 1, 2012 vests over a period of five years.   On January 1, 2012, the Plan was amended to become a Safe Harbor Plan and the match was changed to equal (1) 100% of participant contributions up to the first 3% of participant compensation, plus (2) 50% of participant contributions on the next 2% of participant compensation. In addition, matching contributions made after January 1, 2012 are 100% vested. The Company has recorded compensation expense of $465,000, $712,000 and $1.1 million for matching contributions during fiscal 2012, 2011 and 2010, respectively.

SERP. The Company established a SERP, which has Rabbi and Secular Trust components, for Mr. Edward E. Cohen (“Mr. E. Cohen”), while he was the Company’s Chief Executive Officer.  The Company pays an annual benefit equal to $838,000 during his lifetime or for a period of 10 years from June 2004, whichever is longer.  The 1999 Trust, a secular trust, purchased and holds 100,000 shares of the common stock of TBBK ($1.0 million fair value at September 30, 2012).  The Company held 33,509 shares of TBBK as of September 30, 2011 which were all sold during fiscal 2012 to fund SERP distribution payments to Mr. E. Cohen. The Company anticipates funding $838,000 to the Plan during fiscal 2013 in order for the Plan to pay the annual benefit.

The components of net periodic benefit costs for the SERP were as follows (in thousands):

	Fiscal Years Ended September 30,
	2012			2011			2010
Interest cost	$	325		$	366		$	430
Less: expected return on plan assets	(70		)	(66		)	(59		)
Plus: Amortization of unrecognized loss	378			298			263
Net cost	$	633		$	598		$	634

The reconciliation of the beginning and ending balances for the SERP benefit obligation and fair value of plan assets, comprised entirely of equity securities, as well as the funded status of the Company’s SERP liability, is as follows (in thousands):

	September 30,
	2012				2011
Projected benefit obligation, beginning of year	$	8,216			$	7,626
Interest cost	325				366
Actuarial loss	847				1,062
Benefit payments	(838		)		(838		)
Projected benefit obligation, end of year	$	8,550			$	8,216
Fair value of plan assets, beginning of year	$	1,167			$	1,106
Actual gain on plan assets	407				61
Fair value of plan assets, end of year	$	1,574			$	1,167
Unfunded status	$	(6,976	)		$	(7,049	)
Unrecognized net actuarial loss	5,373				5,241
Net accrued cost	$	(1,603	)		$	(1,808	)
Amounts recognized in the consolidated balance sheets consist of:
Accrued benefit liability	$	(6,976	)		$	(7,049	)
Accumulated other comprehensive loss	3,044			(1)	2,970
Deferred tax asset	2,329				2,271
Net liability recognized	$	(1,603	)		$	(1,808	)

(1) The estimated net loss for the plan that is expected to be amortized from accumulated other comprehensive loss into net periodic pension benefit cost over the next fiscal year is $399,000.

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SEPTEMBER 30, 2012

As of September 30, 2012, the fair value of the SERP plan asset by level within the fair value hierarchy was as follows (in thousands):

	Level 1		Level 2		Level 3		Total
Asset:
Equity securities - TBBK	$	1,574	$	—	$	—	$	1,574

The SERP is expected to make benefit payments based on the same assumptions used to measure the Company’s benefit obligation at September 30, 2012 (2.9% discount rate, 6% expected return on assets) over the next five fiscal years ending September 30, and thereafter, as follows (in thousands):

2013	$	838
2014	827
2015	782
2016	757
2017	729
Thereafter	3,131
	$	7,064

NOTE 20 - CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

In the ordinary course of its business operations, the Company has sponsored and manages investment entities.  Additionally, it has ongoing relationships with several related entities.  The following table details these receivables and payables (in thousands):

	September 30,
	2012		2011
Receivables from managed entities and related parties, net:
Commercial finance investment entities (1)	$	13,904	$	29,725
Real estate investment entities (2)	18,169		19,749
Financial fund management investment entities	2,193		2,540
Other	152		103
Receivables from managed entities and related parties	$	34,418	$	52,117
Payables due to managed entities and related parties, net:
Real estate investment entities (3)	$	3,900	$	1,010
Other	449		—
Payables to managed entities and related parties	$	4,349	$	1,010

(1) Reflects $25.1 million of reserves for credit losses related to management fees owed from three commercial finance investment entities that, based on a change in estimated cash distributions, are not expected to be collectible.

(2) Reflects $2.5 million of reserves for credit losses related to management fees owed from two real estate investment entities that, based on projected cash flows, are not expected to be collectible.

(3) Reflects $2.9 million in funds provided by the real estate investment entities, which are held by the Company to self insure the properties held by those entities.

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SEPTEMBER 30, 2012

The Company receives fees, dividends and reimbursed expenses from several related/managed entities.  In addition, the Company reimburses related entities for certain operating expenses.  The following table details those activities (in thousands):

	Fiscal Years Ended September 30,
	2012			2011			2010
Fees from unconsolidated investment entities:
Real estate(1)	$	17,301		$	12,847		$	11,638
Financial fund management(2)	3,183			4,391			3,445
Commercial finance (3)	—			—			10,637
CVC Credit Partners – reimbursement of net costs and expenses	1,866			—			—
RRE Opportunity REIT:
Reimbursement of costs and expenses	874			1,843			1,824
Dividends paid	14			—			—
LEAF:
Payment for sub-servicing the commercial finance investment     partnerships	(2,172		)	—			—
Payment for rent and related expenses	(686		)	—			—
Reimbursement of net costs and expenses	288			—			—
1845 Walnut Associates Ltd. – payment of rent and operating expenses	(637		)	(706		)	(567		)
Brandywine Construction & Management, Inc. – payment for property management of hotel property	(216		)	(203		)	(197		)
Atlas Energy, L.P.– reimbursement of net costs and expenses	634			1,070			871
Ledgewood P.C. – payment for legal services	(564		)	(555		)	(295		)
Graphic Images, LLC – payment for printing services	(216		)	(111		)	(94		)
The Bancorp, Inc. – reimbursement of net costs and expenses	135			34			—
9 Henmar LLC – payment of broker/consulting fees	(46		)	(50		)	(55		)

(1) Reflects discounts recorded by the Company of $216,000, $512,000 and $463,000 recorded in fiscal 2012, 2011 and 2010 in connection with management fees from its real estate investment entities that it expects to receive in future periods.

(2) For fiscal 2010, excludes a $2.3 million gain on the repurchase of limited partner interests in two of the Trapeza partnerships.  

(3) During fiscal 2012, 2011 and 2010, the Company waived $4.7 million, $8.1 million and $3.8 million, respectively, of its fund management fees from its commercial finance investment entities.

Transactions with RSO prior to consolidation. LEAF Financial originated and managed commercial finance assets on behalf of RSO prior to the formation of LEAF in January 2011.  The leases and loans were typically sold to RSO at fair value plus an acquisition fee of 1% in addition to a 1% fee to then service the assets.  During fiscal 2010, LEAF Financial sold approximately $116.0 million of leases and loans to RSO for which LEAF Financial did not receive acquisition or servicing fees and, accordingly, recognized a loss of $7.5 million, consisting of an estimated loss reserve of $3.0 million (up to a maximum of approximately $5.9 million of delinquent assets could be returned), a servicing liability of $2.5 million and a $2.0 million write-off of previously unreimbursed capitalized costs associated with the portfolio.  Upon consolidation of RSO in October 2011, the Company adjusted retained earnings to eliminate the servicing and repurchase liability from its books. During fiscal 2010, LEAF Financial also sold an additional $10.3 million of leases and loans to RSO.  In addition, from time to time, LEAF Financial repurchased leases and loans from RSO at a price equal to their fair value as an accommodation under certain circumstances, which include the consolidation of multiple customer accounts, originations of new leases when equipment was upgraded and facilitation of the timely resolution of problem accounts when collection was considered likely.  LEAF Financial repurchased $140,000 of leases and loans from RSO during fiscal 2010. As part of the November 2011 LEAF Transaction, RSO transferred its remaining portfolio of leases and loans to LEAF.

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RESOURCE AMERICA, INC.

NOTES TO RESTATED CONSOLIDATED FINANCIAL STATEMENTS − (Continued)

SEPTEMBER 30, 2012

Relationship with CVC Credit Partners. In conjunction with the sale of Apidos to CVC, the Company received, in part, a 33% limited partner interest in CVC Credit Partners, a joint venture between the Company and CVC, and a 33% interest in the General Partner of CVC Credit Partners (see Note 1 for a more detailed description of the transaction). Mr. Jonathan Z. Cohen, the Company's Chief Executive Officer and President, serves as the chairman of the board of CVC Credit Partners for an initial term extending to December 31, 2013 so long as the Company holds at least 10% of the partnership interests. In addition, so long as the Company holds at least 25% of the partnership interests, the Company's consent will be required for all non-routine partnership actions, including dispositions and acquisitions in excess of specified thresholds, declarations of distributions, appointment and termination of senior employees, establishment of new investment funds and financings in excess of specified thresholds.

Under a fee agreement, in connection with the April 2012 sale of Apidos to CVC, the Company is required to remit a portion of the base management fee and incentive compensation it receives from RSO to Apidos-CVC. The percentage paid to Apidos-CVC is determined by dividing the equity RSO holds in four Apidos CLOs by the calculated equity used to determine the base management fee. Any incentive compensation paid to Apidos-CVC excludes non-recurring items unrelated to Apidos-CVC.

In February 2011, the Company entered into a services agreement with RSO to provide sub-advisory collateral management and administrative services for five CLOs holding approximately $1.7 billion in bank loans whose management contracts RSO had acquired.  In connection with the services provided, in February 2011 the management agreement was further amended to permit RSO to pay Apidos-CVC 10% of all base and additional collateral management fees and 50% of all incentive collateral management fees it collects and reimburse its expenses relative to the management of these CLOs.

In accordance with the shared services agreement it has with CVC Credit Partners, the Company will receive $94,000 per month for reimbursement of various operating costs and expenses it incurs on behalf of the partnership.

Relationship with LEAF. The Company maintains a shared service agreement with LEAF for the reimbursement of various costs and expenses it incurs on behalf of LEAF. In addition, the Company subleases office space in Philadelphia, Pennsylvania from LEAF under a lease that expires in August 2013.

Sub-servicing agreement with LEAF for the commercial finance investment funds. The Company entered into a sub-servicing agreement with LEAF to provide management services for the commercial finance funds. The fee is equal to LEAF's costs to provide these services up to a maximum of 1% of the net present value of all lease and loan contracts comprising each commercial finance fund's borrowing base under its credit facilities or securitizations. In addition, LEAF is entitled to an evaluation fee equal to 50% of any acquisition or similar fee collected by the Company in connection with the acquisition of any new lease or loan contracts for which LEAF provides evaluation services.

Transactions between LEAF Financial and its investment entities.  LEAF and LEAF Financial originated and manage leases and loans on behalf of the commercial finance funds for which LEAF Financial is also is the general partner.  Prior to the LEAF deconsolidation in November 2011, leases and loans were sold to the commercial finance funds at fair value plus an origination fee not to exceed 2%.  During fiscal 2012, 2011 and 2010, LEAF and LEAF Financial sold a total of $1.5 million, $821,000 and $65.9 million, respectively, of leases and loans to the commercial finance funds.  In addition, from time to time LEAF Financial repurchased leases and loans from the commercial finance funds.  During fiscal 2011 and 2010, LEAF Financial repurchased $0 and $6.0 million, respectively, of leases and loans from the commercial finance funds at a price equal to their fair value.

Relationship with RRE Opportunity REIT.  The Company formed RRE Opportunity REIT in fiscal 2009.  The Company is entitled to receive reimbursements for costs associated with the formation and operating expenses of RRE Opportunity REIT.  As of September 30, 2012, the Company had a $138,000 receivable due from RRE Opportunity REIT.

On June 17, 2011, the Company loaned $1.4 million to RRE Opportunity REIT at a rate of interest of 6.5% with a maturity of six months.  The loan was repaid on June 28, 2011, along with related interest.

Relationship with Atlas Energy, L.P. (“Atlas”).  Mr.E. Cohen is the Company’s Chairman of the Board and is the chief executive officer (“CEO”) and president of the general partner of Atlas, and Mr. Jonathan Z. Cohen (“Mr. J. Cohen”), the Company’s CEO and President, is the general partner’s chairman of the board.  Atlas subleases office space from the Company and also reimburses the Company for certain shared services.  In addition, the Company subleases office space from Atlas on a month to month basis. At September 30, 2012, the Company had a $52,000 receivable balance from Atlas.

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RESOURCE AMERICA, INC.

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SEPTEMBER 30, 2012

Relationship with 1845 Walnut Associates Ltd.  The Company owns a 5% investment in a real estate partnership that owns a building at 1845 Walnut Street, Philadelphia in which the Company also leases office space.  In February 2009, the Company amended its lease for its offices in this building to extend the lease termination date through May 2013. In October 2012, the Company signed a new ten-year lease for 28,930 square feet of office space in the same building commencing in August 2013. The Company was provided a tenant allowance of $1.4 million for renovation of the office and the lease provides for a five-year extension.

Relationship with Ledgewood P.C.(“Ledgewood”).  Until March 2006, Mr. Jeffrey F. Brotman was the managing member of Ledgewood, which provides legal services to the Company.  Mr. Brotman remained of counsel to Ledgewood through June 2007, at which time he became an Executive Vice President of the Company.  In addition, Mr. Brotman was a trustee of the SERP retirement trusts until he joined the Company.  In connection with his separation, Mr. Brotman will receive payments from Ledgewood through 2013.

Mr. E. Cohen, who was of counsel to Ledgewood until April 1996, 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.

Relationship with Graphic Images, LLC (“Graphic Images”).  The Company utilizes the services of Graphic Images, a printing company, whose principal owner is the father of the Company’s Chief Financial Officer.

Relationship with retirement trusts.  The Company has established two trusts to fund the SERP for Mr. E. Cohen.  The 1999 Trust, a secular trust, purchased 100,000 shares of the common stock of TBBK ($1.0 million fair value at September 30, 2012).  See “Relationship with TBBK,” below. This trust and its assets are not included in the Company’s consolidated balance sheets.  However, trust assets are considered in determining the amount of the Company’s liability under the SERP.  The 2000 Trust, a “Rabbi Trust,” held 33,509 shares of TBBK common stock (fair value of $240,000) at September 30, 2011, all of which were sold during fiscal 2012.  The SERP liability of $7.0 million is included in accrued expenses and other liabilities.

Relationship with 9 Henmar LLC (“9 Henmar”).  The Company owns interests in the Trapeza entities that have sponsored CDO issuers and manage pools of trust preferred securities acquired by the CDO issuers.  The Trapeza entities and CDO issuers were originated and developed in large part by Mr. Daniel G. Cohen (“Mr. D. Cohen”).  The Company agreed to pay Mr. D. Cohen’s company, 9 Henmar, 10% of the fees the Company receives, before expenses, in connection with the first four Trapeza CDOs that the Company sponsored and manages.  

Relationship with TBBK.  Mr. D. Cohen is the chairman of the board and Mrs. Betsy Z. Cohen, (“Mrs. B. Cohen”, who is the wife of Mr. E. Cohen (Mr. E. Cohen and Mrs. B. Cohen are the parents of Messrs. J. Cohen and D. Cohen) is the CEO of TBBK and its subsidiary bank.  Beginning in June 2011, the Company sublet a portion of its New York office space to TBBK.  In fiscal 2012 and 2011, the Company sold 33,509 and 90,210 of its shares of TBBK common stock for $262,000 and $790,000, respectively, and realized gains of $22,000 and $186,000, respectively.  The Company did not sell any of its TBBK stock during fiscal 2010.  In addition, TBBK provides banking and operational services to LEAF Financial.  During fiscal 2012, 2011 and 2010, LEAF Financial paid $0, $5,000, and $13,000, respectively, in fees to TBBK.  Additionally, the Company held cash deposits of $41,000 at TBBK at September 30, 2012 and 2011, respectively.

Relationship with certain directors, officers, employees and other related parties.  The Company serves as the general partner of seven partnerships that invest in regional domestic banks.  The general partner may receive a carried interest of up to 20% upon meeting specific investor return rates.  Some of the partnerships’ investors wanted to ensure that certain individuals who are critical to the success of the partnerships participate in the carried interest.  For four of these partnerships, the total participation authorized by the Company’s compensation committee was 48.5% of the 20% carried interest, of which Mr. J. Cohen is entitled to receive 10%.  Nine individuals, four of whom are employees of the Company, are entitled to receive the remaining 38.5%.  For the remaining three partnerships, the total participation authorized by the Company's compensation committee was 50% of the 20% carried interest. Six individuals, five of whom are employees of the Company, are entitled to receive the remaining 50%. No carried interest had been earned by any of the individuals through September 30, 2012.

Relationship with Brandywine Construction & Management, Inc. (“BCMI”).  BCMI manages the property underlying one of the Company’s real estate investments.  Mr. E. Cohen is the chairman of BCMI.

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RESOURCE AMERICA, INC.

NOTES TO RESTATED CONSOLIDATED FINANCIAL STATEMENTS − (Continued)

SEPTEMBER 30, 2012

In March 2008, the Company sold a 19.99% interest in two indirect subsidiaries that hold a hotel property in Savannah, Georgia to a limited liability company owned by Mr. Adam Kauffman ("Mr. A. Kauffman")for $1 million plus $130,000 in fees, and recognized a gain of $612,000.  The terms of the sale agreement provided an option to Mr. A. Kauffman, who is president of BCMI, to purchase up to the balance of the Company’s interest in the hotel for $50,000 per 1% interest purchased.  The purchase option expired in July 2011.  Mr. A. Kauffman now has a right-of-first-offer to purchase the balance of the Company’s interest in the hotel.

In November 2012, the Company paid a $95,000 fee to BCMI in connection with the negotiations and ultimate sale of a property in which the Company had a loan investment.

Advances to Affiliated Real Estate Limited Partnership. During fiscal 2011, the Company agreed to increase its advances to an affiliated real estate limited partnership under a revolving note to $3.0 million (from $2.0 million), bearing interest at the prime rate.  Amounts drawn, which are due upon demand, were $2.4 million and $2.2 million as of September 30, 2012 and 2011, respectively, which are included in Receivables from Managed Entities and Related Parties, net of allowance for credit losses. The Company recorded $56,000 and $69,000 of interest income on this loan during fiscal 2012 and 2011, respectively. Based on projected collectability concerns, determined by applying current asset values, these amounts have been fully reserved.

NOTE 21– FAIR VALUE

In analyzing the fair value of its assets and liabilities accounted for on a fair value basis, the Company follows the fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Assets and liabilities are categorized into one of three levels based on the assumptions (inputs) used in valuing the asset or liability. Level 1 provides the most reliable measure of fair value, while Level 3 generally requires significant management judgment. The three levels are defined as follows:

Level 1 − Quoted prices in active markets for identical assets and liabilities that the reporting entity has the ability to access at the measurement date. 

Level 2 − Observable inputs other than quoted prices included within Level 1, such as quoted prices for similar assets or liabilities in active markets or quoted prices for identical assets or liabilities in inactive markets.

Level 3 − Unobservable inputs that reflect the entity's own assumptions about the assumptions that market participants would use in the pricing of the asset or liability and that are, consequently, not based on market activity, but upon particular valuation techniques.

There were no transfers between any of the Levels within the fair value hierarchy for any of the periods presented.

The following is a discussion of the assets and liabilities that are recorded at fair value on a recurring and non-recurring basis, as well as the valuation techniques applied to each fair value measurement and the estimates and assumptions used by the Company in those measurements.

Receivables from managed entities. The Company recorded a discount on certain of its receivable balances due from its real estate and commercial finance managed entities due to the extended term of the repayment to the Company. The discount was computed based on estimated inputs, including the repayment term (Level 3).

For the real estate managed entity receivables, the Company assumes the fair value of the real estate investment funds through the sale of the underlying properties. The net proceeds are applied first to the payoff of the lenders and then to the payment of distributions due to investors; any balance remaining is then available to repay the amounts due to the Company. The balance sheet date fair value of the properties are individually calculated based on capitalized net operating income, which are derived from capitalization rates from a third-party research firm (for the region in which the properties are located, based on actual sales data for properties sold during the past year) as applied to the Company's internally-generated projected operating results for each of the respective properties. These projections are historically based on and are adjusted for current trends in the marketplace and specific changes as applicable by property.

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SEPTEMBER 30, 2012

With respect to the commercial finance partnership receivables, management projects the availability of excess cash flow at the individual investment entity to repay the Company's receivable. In determining the excess cash flow, management starts with the gross future payments due on leases and loans for each of the funds, which are fixed and determinable, net of debt service and expected credit losses, which are estimated based on a migration analysis which is calculated based on historical data across the entire portfolio of leases and loans. This analysis estimates the likelihood that an account will progress through delinquency stages to ultimate charge-off. After an account becomes 180 or more days past due, any remaining balance is fully reserved, less an estimated recovery amount based on historical trends (currently estimated at 12.4%). Cash is first applied to the payoff of the underlying principal and interest on debt used to purchase the portfolios. The projected cash flows also take into consideration the receipt of other income (such as late fees or residual gains), the payment of general and administrative expenses of the funds and distributions to limited partners. The remaining excess cash is then available to repay the amounts due to the Company.

Investment securities − equity securities. The Company uses quoted market prices (Level 1) to value its investment in TBBK common stock.

Investment securities − trading securities. The Company uses third-party dealer quotes or bids and recent transactions to estimate the fair value of its trading securities (Level 3).

Investment securities − CLO securities. The fair value of CLO securities is based on internally generated expected cash flow models that require significant management judgments and estimates due to the lack of market activity and unobservable pricing inputs. Unobservable inputs into these models include default, recovery, discount and deferral rates, prepayment speeds and reinvestment interest spreads (Level 3).

The significant unobservable inputs used in the fair value measurement of the Company's CLO securities are prepayment rates, probability of default, loss severity rate, reinvestment price on underlying collateral and the discount rate. Significant increases (decreases) in the default or discount rates in isolation would result in a significantly lower (higher) fair value measurement, whereas significant increases (decreases) in the recovery rate, prepayment rate or reinvestment price in isolation would result in a significantly higher (lower) fair value measurement.  Generally, a change in the assumption used for the probability of default is accompanied by a directionally similar change in the assumption used for the discount rate and a directionally opposite change in the assumption used for prepayment rates, recovery rates and reinvestment prices on underlying collateral. 

Investment in real estate. The Company received an offer for the sale of one of its assets included in Investments in Real Estate. The offer was below the book value of the asset and, accordingly, the Company recorded an impairment charge during fiscal 2012 (Level 2). The property was subsequently sold in November 2012.

Investment in real estate- office building. The Company's investment in an office building, located in Philadelphia, Pennsylvania was determined to be impaired during fiscal 2012. The Company determined the fair value of the building using an estimated loan to value based on stabilized projected cash flows (Level 3).

Investment in CVC Credit Partners. The Company utilized a third-party valuation firm to value its investment in CVC Credit Partners and the Apidos preferred stock. The joint venture investment was valued at $28.6 million based on the weighted average of several calculations, including implied transaction, dividend discount, discounted cash flow, and guideline public company models. These valuation models required assumptions and estimates of many critical factors, including revenue and market growth, operating cash flows, market multiples, and discount rates, which took into consideration the current economic environment and credit market conditions (Level 3).

Investment in Apidos-CVC preferred stock and contractual commitment. The Company's investment in the Apidos-CVC preferred stock, valued at $6.8 million, as well as the corresponding contractual commitment valued at $589,000, were both based on the present value of the underlying discounted projected cash flows of the legacy Apidos incentive management fees (Level 3).

Investment in LEAF. The Company's investment in LEAF, also based on a third-party valuation, was valued at $1.7 million. The valuation utilized several approaches, including discounted expected cash flows, market approach and comparable sales transactions to estimate the fair value of the Company's investment in LEAF as a result of the November 2011 LEAF Transaction. These approaches required assumptions and estimates of many critical factors, including revenue and market growth, operating cash flows, market multiples, and discount rates, which were based on the current economic environment and credit market conditions (Level 3).

The following items are included in the Company's fair value disclosures at September 30, 2011. Due to the LEAF transaction, they are no longer included in the consolidated financial statements at September 30, 2012:

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SEPTEMBER 30, 2012

Retained interest − commercial finance. During fiscal 2010, the Company sold leases and loans to third-parties in which portions of the proceeds were retained by the purchasers. The purchasers had the right to return leases and loans that default within periods ranging from approximately six to forty-eight months after the date of sale and to deduct the applicable percentage from the retained proceeds. The Company determined the fair value of these retained interests by calculating the present value of future expected cash flows using key assumptions for credit losses and discount rates based on historical experience and repayment terms (Level 3).

Interest rate swaps. These instruments were valued by a third-party pricing agent using an income approach and utilizing models that used as their primary basis readily observable market parameters. This valuation process considered factors including interest rate yield curves, time value, credit factors and volatility factors. Although the Company determined that the majority of the inputs used to value its derivatives fell within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with these derivatives utilized Level 3 inputs, such as estimates of credit spreads to evaluate the likelihood of default by itself and its counterparties. However, the Company assessed the significance of the impact of the credit valuation adjustments on the overall valuation of these derivative positions and determined that the credit valuation adjustments were not significant to the overall valuation of these derivatives. As a result, the Company determined that these derivative valuations in their entirety were classified in Level 2 of the fair value hierarchy.

Guggenheim - secured revolving facility. The proceeds from this loan were allocated to the revolving facility and the warrants issued to the lender based on their relative fair values, as determined by an independent third-party appraiser. The appraiser determined the fair value of the debt based primarily on the interest rates of similarly rated notes with similar terms. The appraiser assessed the fair value of the equity of LEAF in making its determination of the fair value of the warrants (Level 3).

Impaired loans and leases - commercial finance. Leases and loans were considered impaired when they are 90 or more days past due and were placed on non-accrual status. The Company recorded an allowance for the impaired loans and leases based upon historical experience (Level 3).

As of September 30, 2012, the fair values of the Company’s assets recorded at fair value on a recurring basis were as follows (in thousands): 

	Level 1		Level 2		Level 3		Total
Asset:
Investment securities	$	195	$	—	$	6,835	$	7,030

As of September 30, 2011, the fair values of the Company’s assets recorded at fair value on a recurring basis were as follows (in thousands): 

	Level 1		Level 2		Level 3		Total
Assets:
Investment securities	$	376	$	—	$	2,356	$	2,732
Retained financial interest – commercial finance	—		—		22		22
Total	$	376	$	—	$	2,378	$	2,754
Liability:
Interest rate swap	$	—	$	404	$	—	$	404

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RESOURCE AMERICA, INC.

NOTES TO RESTATED CONSOLIDATED FINANCIAL STATEMENTS − (Continued)

SEPTEMBER 30, 2012

The following table presents additional information about assets which were measured at fair value on a recurring basis for which the Company has utilized Level 3 inputs to determine fair value during fiscal 2012 (in thousands):

	Investment Securities			Retained Financial Interest
Balance, beginning of year	$	2,356		$	22
Purchases	7,570			—
Income accreted	823			—
Payments and distributions received	(2,827		)	—
Sales	(2,999		)	—
Impairment recognized in earnings	(74		)	—
Gains on sales of trading securities	909			—
Unrealized holding gain on trading securities	1,108			—
Deconsolidation of LEAF	—			(22		)
Change in unrealized losses – included in accumulated other comprehensive loss	(31		)	—
Balance, end of year	$	6,835		$	—

The following table presents additional information about assets which were measured at fair value on a recurring basis for which the Company has utilized Level 3 inputs to determine fair value during fiscal 2011 (in thousands):

	Investment Securities			Retained Financial Interest
Balance, beginning of year	$	6,223		$	273
Purchases, sales, issuances and settlements, net	(2,946		)	—
Loss on sale of investment securities, net	(1,470		)	—
Income accreted	948			—
Payment and distributions received	(861		)	(251		)
Change in unrealized losses – included in accumulated other comprehensive loss	462			—
Balance, end of year	$	2,356		$	22

The following table presents the Company's quantitative inputs and assumptions used in determining the fair value of items categorized in Level 3 (in thousands, except percentages):

	Fair Value at September 30, 2012		Valuation Technique	Unobservable Inputs	Assumptions (weighted average)
CLO securities	$	3,771	Discounted cash flow	Constant default rate	2%
				Loss severity rate	30%
				Constant prepayment rate	25%
				Reinvestment price on collateral	99%
				Discount rate	20%

Investment securities - trading securities. Since the Company uses third party dealer marks to estimate the fair value of its nonmarketable trading securities owned, the valuation techniques and significant unobservable inputs used in recurring Level 3 fair value measurements of assets as of September 30, 2012 have not been provided.

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NOTES TO RESTATED CONSOLIDATED FINANCIAL STATEMENTS − (Continued)

SEPTEMBER 30, 2012

The Company recognized the following changes in carrying value of the assets and liabilities measured at fair value on a non-recurring basis, as follows (in thousands):

	Level 1		Level 2		Level 3		Total
Fiscal Year Ended September 30, 2012:
Assets:
Receivables from managed entities – commercial finance and real estate	$	—	$	—	$	16,752	$	16,752
Investment in real estate	—		727		—		727
Investment in real estate - office building	—		—		906		906
Investment in CVC Credit Partners	—		—		28,600		28,600
Investment in Apidos-CVC preferred equity	—		—		6,792		6,792
Investment in LEAF	—		—		1,749		1,749
Total	$	—	$	727	$	54,799	$	55,526
Liability:
Apidos contractual commitment	$	—	$	—	$	589	$	589
Fiscal Year Ended September 30, 2011:
Assets:
Investments in commercial finance – impaired loans and leases	$	—	$	—	$	310	$	310
Receivables from managed entities	—		—		18,941		18,941
Total	$	—	$	—	$	19,251	$	19,251
Liability:
Guggenheim - secured revolving credit facility	$	—	$	—	$	49,266	$	49,266

The fair value of financial instruments required to be disclosed at fair value, excluding instruments valued on a recurring basis, is as follows (in thousands):

	September 30, 2012				September 30, 2011
	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Assets:
Receivables from managed entities	$	34,418	$	34,418	$	52,117	$	36,526
Investments in commercial finance – loans held for investment	—		—		19,640		19,550
	$	34,418	$	34,418	$	71,757	$	56,076
Borrowings:
Real estate debt	$	10,531	$	11,554	$	10,700	$	10,700
Senior Notes	10,000		11,364		16,263		17,438
Corporate secured credit facilities and note	—		—		8,743		8,743
Other debt	812		812		2,102		1,204
Commercial finance debt	—		—		176,246		176,246
	$	21,343	$	23,730	$	214,054	$	214,331

For cash, receivables and payables, the carrying amounts approximate fair value because of the short-term maturity of these instruments.

The estimated fair value of the receivables from managed entities includes the discounted net projected cash flows available to repay the Company on amounts due from its four commercial finance investment entities.

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SEPTEMBER 30, 2012

The carrying value of the Company's corporate secured revolving credit facilities and term note approximates their fair values because of their variable interest rates. The Company estimated the fair value of the real estate debt using current interest rates for similar loans. The Company estimated the fair value of the Senior Notes by applying the percentage appreciation in a high-yield fund with approximately similar quality and risk attributed to the Senior Notes. The carrying value of the Company's other debt was estimated using current interest for similar loans at September 30, 2012 and 2011. The carrying value of the Company's commercial finance debt approximated its fair value due to its recent issuance at September 30, 2011 and was deconsolidated during the Company's first quarter ended December 31, 2011 (all fair values are Level 3).

NOTE 22 - COMMITMENTS AND CONTINGENCIES

Leases. The Company leases office space and equipment under leases with varying expiration dates through 2020.  Rental expense, net of subleases, was $1.7 million, $2.6 million and $3.2 million for fiscal 2012, 2011 and 2010, respectively.  The Company’s office space leases in New York and in Philadelphia contain extension clauses.  The Company has the ability to extend the New York lease for an additional five-year term, and one of the Philadelphia leases provides one option to extend for an additional five-year term.  In addition, one of the Philadelphia office leases allows the Company to terminate the lease early with a termination payment to the landlord in January 2020. At September 30, 2012, future minimum rental commitments (net of subleases) under operating and capital leases over the next five fiscal years ending September 30, and thereafter were as follows (in thousands):

	Operating		Capital		Total
2013	$	1,802	$	250	$	2,052
2014	2,000		91		2,091
2015	2,043		—		2,043
2016	2,064		—		2,064
2017	1,994		—		1,994
Thereafter	7,537		—		7,537
	$	17,440	$	341	$	17,781

LEAF lease valuation commitment. In accordance with the November 2011 LEAF Transaction, the Company and RSO have undertaken a contingent obligation with respect to the value of the equity on the balance sheet of LRF3. To the extent that the value of the equity on the balance sheet of LRF3 is less than $18.7 million (the value of the equity of LRF3 on the date it was contributed by RSO to LEAF), as of the final testing date within 90 days after December 31, 2013, the Company and RSO have agreed to be jointly and severally obligated to contribute cash to LEAF to the extent of any shortfall. The LRF3 equity as of September 30, 2012 was in excess of this commitment and, therefore, no liability was required.

Limited loan guarantee. The Company and two of its commercial finance investment partnerships, Lease Equity Appreciation Fund I, L.P. (“LEAF I”) and Lease Equity Appreciation Fund II, L.P. (“LEAF II”), have provided a limited guarantee to a lender to the LEAF partnerships in exchange for a waiver of any existing defaulted loan covenants and certain future financial covenants. The loans mature at the earlier of (a) the maturity date (March 20, 2014 for LEAF I and December 21, 2013 for LEAF II), or (b) the date on which an event of default under the loan agreement occurs. The maximum guarantee provided by the Company is up to $7.3 million ($2.3 million for LEAF I and $5.0 million for LEAF II). If the Company were required to make any such payments under the guarantee in the future, it would have the option to either step in as the lender or otherwise make a capital contribution to the LEAF partnerships for the amount of the required guarantee payment. Under certain circumstances, the lender will also discount their loans by approximately $250,000 for LEAF I and $347,500 for LEAF II. Management has determined that, based on projected cash flows from the underlying lease and loan portfolios collateralizing the loans, there should be sufficient funds to repay the LEAF partnerships' outstanding loan balances and, accordingly, the Company has no recorded liability under the guarantee.

Broker-Dealer Capital Requirement.  Resource Securities serves as a dealer-manager for the sale of securities of direct participation investment programs, both public and private, sponsored by subsidiaries of the Company who also serve as general partners and/or managers of these programs.  Additionally, Resource Securities serves as an introducing agent for transactions involving sales of securities of financial services companies, REITs and insurance companies for the Company and for RSO.  As a broker-dealer, Resource Securities is required to maintain minimum net capital, as defined in regulations under the Securities Exchange Act of 1934, as amended, which was $100,000 as of September 30, 2012 and 2011.  As of September 30, 2012 and 2011, Resource Securities net capital was $447,000 and $254,000, respectively, which exceeded the minimum requirements by $347,000 and $154,000, respectively.

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SEPTEMBER 30, 2012

Clawback liability.  On November 1, 2009 and January 28, 2010, the general partners of two of the Trapeza entities, which are owned equally by the Company and its co-managing partner, repurchased substantially all of the remaining limited partnership interests in the two Trapeza entities with potential clawback liabilities for $4.4 million.  The Company contributed $2.2 million (its 50% share).  The clawback liability was $1.2 million at September 30, 2012 and 2011.

Legal proceedings. In September 2011, First Community Bank, (“First Community”) filed a complaint against First Tennessee Bank and approximately thirty other defendants consisting of investment banks, rating agencies, collateral managers, including Trapeza Capital Management, LLC (“TCM”), and issuers of CDOs, including Trapeza CDO XIII, Ltd. and Trapeza CDO XIII, Inc. TCM and the Trapeza CDO issuers are collectively referred to as Trapeza. The complaint includes causes of action against TCM for fraud, negligent misrepresentation, violation of the Tennessee Securities Act of 1980 and unjust enrichment. First Community alleges, among other things, that it invested in certain CDOs, that the defendant rating agencies assigned inflated investment grade ratings to the CDOs, and that the defendant investment banks, collateral managers and issuers (including Trapeza) fraudulently and/or negligently made “materially false and misleading representations and omissions” that First Community relied on in investing in the CDOs, including both written representations in offering materials and unspecified oral representations. Specifically, with respect to Trapeza, First Community alleges that it purchased $20 million of notes in the D tranche of the Trapeza CDO XIII transaction from J.P. Morgan. The Court dismissed this matter in June 2012. First Community filed a Notice of Appeal in July 2012.

The Company is also a party to various routine legal proceedings arising out of the ordinary course of business. Management believes that none of these actions, individually or, in the aggregate, will have a material adverse effect on the Company's consolidated financial condition or operations.

Real estate commitments.  As a specialized asset manager, the Company sponsors and manages investment funds in which it may make an equity investment along with outside investors.  This equity investment is generally based on a percentage of funds raised and varies among investment programs.  With respect to RRE Opportunity REIT, the Company is committed to invest 1% of the equity raised to a maximum amount of $2.5 million. This commitment has been reduced to $1.1 million as of September 30, 2012 for funds already invested to date.    

In July 2011, the Company entered into an agreement with one of the TIC programs it sponsored and manages.  This agreement requires the Company to fund up to $1.9 million for capital improvements for the TIC property over the next two years.  The Company advanced funds totaling $1.7 million as of September 30, 2012 which is included in Investments in real estate on the Consolidated Balance Sheets.

The liabilities for the real estate commitments will be recorded in the future as amounts become due and payable.

General corporate commitments. The Company is also party to employment agreements with certain executives that provide for compensation and other benefits, including severance payments under specified circumstances.

     As of September 30, 2012, except for the clawback liability recorded for the two Trapeza entities and executive compensation, the Company did not believe it was probable that any payments would be required under any of its commitments and contingencies and, accordingly, no liabilities for these obligations were recorded in the consolidated financial statements.

NOTE 23 – DISCONTINUED OPERATIONS

In connection with the sale of a real estate loan in March 2006, the Company agreed that in exchange for the property owner relinquishing certain control rights, the Company would make payments to the owner under stipulated circumstances.  On April 7, 2011, the Company was formally notified that a trigger event had occurred on March 17, 2011 and, accordingly, it accrued the present value of $3.4 million for the payout due to the owner under the agreement, which was reflected as a $2.2 million loss, net of tax, from discontinued operations in the consolidated statements of operations. Discontinued operations in fiscal 2012 represent the continuing accretion of that liability. The remaining liability of $862,000 is included in Accrued expenses and other liabilities on the consolidated balance sheets at September 30, 2012 and will be repaid in monthly installments until April 2013.

The discontinued operations for fiscal 2010 primarily reflects the reversal of previously recorded interest and penalty assessments related to IRS tax examinations for fiscal 2004 and 2005, which were settled in fiscal 2010.

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RESOURCE AMERICA, INC.

NOTES TO RESTATED CONSOLIDATED FINANCIAL STATEMENTS − (Continued)

SEPTEMBER 30, 2012

The summarized operating results of discontinued operations are as follows (in thousands):

	Fiscal Years Ended September 30,
	2012			2011			2010
(Loss) income from discontinued operations	$	(90	)	$	(3,387	)	$	622
Benefit for income taxes	32			1,185			—
(Loss) income from discontinued operations, net of tax	$	(58	)	$	(2,202	)	$	622

NOTE 24 - OPERATING SEGMENTS

The Company manages its operations and makes business decisions based on three reportable operating segments, Real Estate, Financial Fund Management and Commercial Finance, and one segment, RSO, which is a consolidated VIE.  Certain other activities are reported in the “All Other” category and Eliminations in the tables in order for the information presented about the Company's operating segments to agree to the consolidated balance sheets and statements of operations. Summarized operating segment data are as follows (in thousands):

	Real Estate			Financial Fund Management			Commercial Finance			All Other (1)			Total RAI			RSO			Eliminations			Total Consolidation
Fiscal Year Ended September 30, 2012:
Revenues from external customers	$	38,162		$	18,700		$	4,135		$	—		$	60,997		$	123,698		$	(17,234	)	$	167,461
Equity in earnings (losses) of unconsolidated entities	2,433			3,257			(2,251		)	—			3,439			—			—			3,439
Total revenues	40,595			21,957			1,884			—			64,436			123,698			(17,234		)	170,900
Segment operating expenses	(29,669		)	(17,086		)	(2,414		)	—			(49,169		)	(63,850		)	16,360			(96,659		)
Restructuring expenses	—			—			—			(365		)	(365		)	—			—			(365		)
General and administrative expenses	(356		)	(2,683		)	—			(7,421		)	(10,460		)	—			—			(10,460		)
Gain on sale of leases and loans	—			—			37			—			37			—			—			37
Impairment charges	(2,280		)	—			—			—			(2,280		)	—			—			(2,280		)
Provision for credit losses	(342		)	—			(16,904		)	—			(17,246		)	—			—			(17,246		)
Depreciation and amortization	(1,303		)	(126		)	(1,556		)	(668		)	(3,653		)	—			—			(3,653		)
Gain on sale and deconsolidation of subsidiaries	—			54,542			8,749			—			63,291			—			—			63,291
Loss on extinguishment of debt	—			—			—			(2,190		)	(2,190		)	—			—			(2,190		)
(Loss) gain on sale of investment securities, net	—			41			—			22			63			—			—			63
Impairment loss recognized in earnings	—			(74		)	—			—			(74		)	—			—			(74		)
Interest expense	(856		)	—			(1,749		)	(2,136		)	(4,741		)	—			—			(4,741		)
Other income (expense), net	522			2,104			—			(523		)	2,103			19,197			(1,947		)	19,353
Pretax loss (income) attributable to noncontrolling interests (2)	5			—			(224		)	—			(219		)	(1,244		)	(60,705		)	(62,168		)
Income (loss) including noncontrolling interest before intercompany interest expense and taxes	6,316			58,675			(12,177		)	(13,281		)	39,533			77,801			(63,526		)	53,808
Intercompany interest (expense) income	—			—			(29		)	29			—			—			—			—
Income (loss) from continuing operations including noncontrolling interests before taxes	$	6,316		$	58,675		$	(12,206	)	$	(13,252	)	$	39,533		$	77,801		$	(63,526	)	$	53,808

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SEPTEMBER 30, 2012

	Real Estate			Financial Fund Management			Commercial Finance			All Other (1)			Total RAI			RSO			Eliminations			Total Consolidation
Fiscal Year Ended September 30, 2011:
Revenues from external customers	$	30,275		$	22,904		$	22,460		$	—		$	75,639		$	95,986		$	(15,070	)	$	156,555
Equity in earnings (losses) of unconsolidated entities	8,105			2,937			(665		)	—			10,377			—			—			10,377
Total revenues	38,380			25,841			21,795			—			86,016			95,986			(15,070		)	166,932
Segment operating expenses	(24,465		)	(20,562		)	(15,207		)	—			(60,234		)	(50,103		)	11,061			(99,276		)
General and administrative expenses	(327		)	(3,176		)	—			(8,019		)	(11,522		)	—			—			(11,522		)
Gain on sale of leases and loans	—			—			659			—			659			—			—			659
Provision for credit losses	(2,193		)	—			(8,468		)	—			(10,661		)	—			—			(10,661		)
Depreciation and amortization	(1,279		)	(164		)	(8,766		)	(530		)	(10,739		)	—			—			(10,739		)
Gain on sale of management contract	—			6,520			—			—			6,520			—			—			6,520
(Loss) gain on sale of investment securities, net	—			(1,384		)	—			186			(1,198		)	—			—			(1,198		)
Interest expense	(1,109		)	—			(8,563		)	(5,671		)	(15,343		)	—			—			(15,343		)
Other income (expense), net	544			2,590			13			(905		)	2,242			3,869			(2,243		)	3,868
Pretax loss attributable to noncontrolling interests (2)	52			—			99			—			151			—			(33,373		)	(33,222		)
Income (loss) including noncontrolling interest before intercompany interest expense and taxes	9,603			9,665			(18,438		)	(14,939		)	(14,109		)	49,752			(39,625		)	(3,982		)
Intercompany interest (expense) income	—			—			(1,678		)	1,678			—			—			—			—
Income (loss) from continuing operations including noncontrolling interests before taxes	$	9,603		$	9,665		$	(20,116	)	$	(13,261	)	$	(14,109	)	$	49,752		$	(39,625	)	$	(3,982	)

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SEPTEMBER 30, 2012

	Real Estate			Financial Fund Management			Commercial Finance			All Other (1)			Total
Fiscal Year Ended September 30, 2010:
Revenues from external customers	$	31,042		$	27,243		$	25,573		$	—		$	83,858
Equity in earnings (losses) of unconsolidated entities	869			5,897			(1,896		)	—			4,870
Total revenues	31,911			33,140			23,677			—			88,728
Segment operating expenses	(20,780		)	(21,028		)	(18,164		)	—			(59,972		)
General and administrative expenses	(316		)	(3,668		)	(428		)	(8,560		)	(12,972		)
Loss on sale of leases and loans	—			—			(8,097		)	—			(8,097		)
Impairment of intangible assets	—			—			(2,828		)	—			(2,828		)
Provision for credit losses	(49		)	(1		)	(5,159		)	—			(5,209		)
Depreciation and amortization	(1,304		)	(196		)	(5,693		)	(649		)	(7,842		)
Other-than-temporary impairment losses recognized in earnings	—			(480		)	—			(329		)	(809		)
Interest expense	(1,074		)	(3		)	(6,271		)	(5,738		)	(13,086		)
Loss on sale of loans and investment securities, net	—			(451		)	—			—			(451		)
Other income (expense), net	387			2,429			1			(226		)	2,591
Pretax loss attributable to noncontrolling interests (2)	61			8			4,854			—			4,923
Income (loss) including noncontrolling interest before intercompany interest expense and taxes	8,836			9,750			(18,108		)	(15,502		)	(15,024		)
Intercompany interest (expense) income	—			—			(6,115		)	6,115			—
Income (loss) from continuing operations including noncontrolling interests before taxes	$	8,836		$	9,750		$	(24,223	)	$	(9,387	)	$	(15,024	)

Segment assets	Real Estate		Financial Fund Management		Commercial Finance		All Other (1)			Total RAI		RSO		Eliminations			Total Consolidation
2012	$	169,727	$	82,862	$	15,497	$	(71,343	)	$	196,743	$	2,478,251	$	(30,731	)	$	2,644,263
2011	$	162,950	$	39,246	$	260,808	$	(40,498	)	$	422,506	$	2,284,724	$	(70,245	)	$	2,636,985
2010	$	155,434	$	36,647	$	81,053	$	(38,881	)	$	234,253	$	—	$	—		$	234,253

(1) Includes general corporate expenses and assets not allocable to any particular segment.

(2) In viewing its segment operations, management includes the pretax (income) loss attributable to noncontrolling interests.  However, these interests are excluded from (loss) income from operations as computed in accordance with U.S. GAAP and should be deducted to compute (loss) income from operations as reflected in the Company’s consolidated statements of operations.

Geographic information.  There were no revenues generated from the Company's European operations during fiscal 2012. During fiscal 2011, the Company recognized a $5.1 million net gain on the sale of its management contract with, and equity investment in, REMI I.  Revenues generated from the Company’s European operations totaled $2.3 million for fiscal 2010.  Included in segment assets as of September 30, 2012, 2011 and 2010 were $726,000, $5.4 million and $7.1 million, respectively, of European assets.

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SEPTEMBER 30, 2012

NOTE 25 – UNAUDITED QUARTERLY FINANCIAL DATA AND RESTATEMENT OF INTERIM FINANCIAL STATEMENTS

The Company is restating the previously issued financial statements covering the three months ended on December 31, 2010, March 31, 2011, June 30, 2011 and September 30, 2011 respectively, to reflect the consolidation of RSO in the tables presented below:

Quarterly Results for Fiscal 2011(1)	December 31			March 31			June 30			September 30
	(unaudited)			(unaudited)			(unaudited)			(unaudited)
Revenues	$	16,680		$	20,347		$	27,589		$	21,400
Revenues from consolidated VIE- RSO	22,638			26,150			21,987			25,211
Elimination of consolidated VIE revenues attributed to operating segments	(4,036		)	(3,221		)	(3,632		)	(4,181		)
Total revenues	35,282			43,276			45,944			42,430
Operating income	8,404			5,896			15,070			6,023
Income (loss) from continuing operations	10,452			1,555			13,429			(3,625		)
Loss from discontinued operations	—			(2,153		)	(23		)	(26		)
Net income (loss)	10,452			(598		)	13,406			(3,651		)
Net loss attributable to noncontrolling interests	625			513			513			460
Net income attributable to noncontrolling interests - RSO	(12,579		)	(8,868		)	(14,436		)	(400		)
Net loss attributable to common shareholders	(1,502		)	(8,953		)	(517		)	(3,591		)
Basic and Diluted loss per common share:
Continuing operations	$	(0.08	)	$	(0.35	)	$	(0.03	)	$	(0.18	)
Discontinued operations	—			(0.11		)	—			—
Net loss	$	(0.08	)	$	(0.46	)	$	(0.03	)	$	(0.18	)

(1) Fiscal 2011 – significant events by quarter:

• December 31 – included a net gain of $5.1 million ($3.2 million net of tax, or $0.17 per share-diluted) on the sale of the Company’s management contract and equity investment in REM I.

• March 31 – included a $3.4 million ($2.2 million net of tax, or $0.11 per share-diluted) loss from discontinued operations in connection with the March 2006 sale of a real estate loan in which the Company agreed to make payments under certain circumstances to the owner.  In March 2011, a triggering event occurred.

• June 30 – included a $7.6 million ($3.3 million net of tax, or $0.17 per share-diluted) equity gain based on the Company’s interest in an office building that was sold in Washington, DC.

• September 30 – the gain related to the third quarter sale of the Washington, DC building increased by $800,000 ($361,000 net of tax, or $0.02 per share-diluted) based on the release of funds from escrow.

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SEPTEMBER 30, 2012

Consolidated Balance Sheets
(in thousands, except per share data)
(unaudited)
	December 31,			September 30,
	2010			2010
	(Restated)
ASSETS
Cash	$	14,530		$	11,243
Restricted cash	5,401			12,018
Receivables	622			1,671
Receivables from managed entities and related parties, net	60,401			66,416
Investments in commercial finance, net	22,286			12,176
Investments in real estate, net	28,502			27,114
Investment securities, at fair value	3,678			22,358
Investments in unconsolidated entities	14,387			13,825
Asset of consolidated variable interest entity ("VIE") - RSO
Cash and cash equivalents (including restricted cash)	221,138			—
Investments, at fair value	182,778			—
Loans	1,486,549			—
Investment in real estate and unconsolidated entities	11,233			—
Other assets	33,230			—
Total assets of consolidated VIE - RSO	1,934,928			—
Property and equipment, net	8,324			9,984
Deferred tax assets	36,625			43,703
Goodwill	7,969			7,969
Other assets	5,411			5,776
Total assets	$	2,143,064		$	234,253
LIABILITIES AND EQUITY
Liabilities:
Accrued expenses and other liabilities	$	30,348		$	38,492
Payables to managed entities and related parties	184			156
Borrowings	63,701			66,110
Deferred tax liabilities	411			411
Liabilities of consolidated VIE -- RSO
Borrowings	1,463,701			—
Other liabilities	45,116			—
Total liabilities of consolidated VIE - RSO	1,508,817			—
Total liabilities	1,603,461			105,169
Commitments and contingencies
Equity:
Preferred stock, $1.00 par value, 1,000,000 shares authorized; none outstanding	—			—
Common stock, $.01 par value, 49,000,000 shares authorized; 28,171,720 and 28,167,909 shares issued, respectively (including nonvested restricted stock of 732,308 and 741,086, respectively)	274			274
Additional paid-in capital	282,062			281,378
Accumulated deficit	(34,298		)	(37,558		)
Treasury stock, at cost; 9,118,549 and 9,125,253 shares, respectively	(99,245		)	(99,330		)
Accumulated other comprehensive loss	(1,773		)	(12,807		)
Total stockholders’ equity	147,020			131,957
Noncontrolling interests	(3,474		)	(2,873		)
Noncontrolling interest of consolidated VIE - RSO	396,057			—
Total equity	539,603			129,084
	$	2,143,064		$	234,253

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SEPTEMBER 30, 2012

Consolidating Balance Sheet
(in thousands, except per share data)
(unaudited)
	December 31, 2010
				Restatement Adjustments
				RSO at
	As Reported			March 31, 2011		Eliminations			As Restated
ASSETS
Cash	$	14,530		$	—	$	—		$	14,530
Restricted cash	5,401			—		—			5,401
Receivables	622			—		—			622
Receivables from managed entities and related parties, net	62,016			—		(1,615		)	60,401
Investments in commercial finance, net	22,286			—		—			22,286
Investments in real estate, net	27,462			—		1,040			28,502
Investment securities, at fair value	21,716			—		(18,038		)	3,678
Investments in unconsolidated entities	14,387			—		—			14,387
Assets of consolidated VIE - RSO:
Cash and cash equivalents (including restricted cash)	—			221,138		—			221,138
Investments, at fair value	—			182,778		—			182,778
Loans	—			1,488,488		(1,939		)	1,486,549
Investments in real estate and consolidated entities	—			11,233		—			11,233
Other assets - RSO	—			33,998		(768		)	33,230
Total assets of consolidated VIE - RSO	—			1,937,635		(2,707		)	1,934,928
Property and equipment, net	9,364			—		(1,040		)	8,324
Goodwill	7,969			—		—			7,969
Deferred tax assets, net	42,010			—		(5,385		)	36,625
Other assets	5,411			—		—			5,411
Total assets	$	233,174		$	1,937,635	$	(27,745	)	$	2,143,064
LIABILITIES AND EQUITY
Liabilities:
Accrued expenses and other liabilities	$	35,661		$	—	$	(5,313	)	$	30,348
Payables to managed entities and related parties	952			—		(768		)	184
Borrowings	65,640			—		(1,939		)	63,701
Deferred tax liabilities	411			—		—			411
Liabilities of consolidated VIE - RSO:
Borrowings	—			1,463,701		—			1,463,701
Other liabilities	—			46,731		(1,615		)	45,116
Total liabilities of consolidated VIE - RSO	—			1,510,432		(1,615		)	1,508,817
Total liabilities	102,664			1,510,432		(9,635		)	1,603,461
Commitments and contingencies
Equity:
Preferred stock	—			—		—			—
Common stock	274			—		—			274
Additional paid-in capital	282,062			—		—			282,062
Accumulated deficit	(38,676		)	—		4,378			(34,298		)
Treasury stock, at cost	(99,245		)	—		—			(99,245		)
Accumulated other comprehensive loss	(10,431		)	—		8,658			(1,773		)
Total stockholders’ equity	133,984			—		13,036			147,020
Noncontrolling interests	(3,474		)	—		—			(3,474		)
Noncontrolling interest attributable to RSO	—			427,203		(31,146		)	396,057
Total equity	130,510			427,203		(18,110		)	539,603
	$	233,174		$	1,937,635	$	(27,745	)	$	2,143,064

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NOTES TO RESTATED CONSOLIDATED FINANCIAL STATEMENTS − (Continued)

SEPTEMBER 30, 2012

Consolidated Statements of Operations
(in thousands, except per share data)
(unaudited)
	December 31,
	2010			2009
	(Restated)
REVENUES:
Real estate (includes revenues of $1,363 and $1,793 related to RSO)	$	6,874		$	6,947
Commercial finance (includes $144 and $24 related to RSO)	1,476			8,823
Financial fund management (includes revenues of $2,402 and $672 related to RSO)	8,330			9,652
	16,680			25,422
Revenues from consolidated VIE - RSO	22,638			—
Elimination of consolidated revenues attributed to operating segments	(4,036		)	—
Total revenues	35,282			25,422
COSTS AND EXPENSES:
Real estate	5,461			4,727
Financial fund management	6,720			4,704
Commercial finance	4,273			4,575
General and administrative	3,116			3,432
(Gain) loss on sale of leases and loans	(11		)	582
Provision for credit losses	1,606			776
Depreciation and amortization	1,125			2,206
	22,290			21,002
Expenses from consolidated VIE - RSO	7,698			—
Elimination of consolidated expenses attributed to operating segments	(3,110		)	—
Total expenses	26,878			21,002
OPERATING INCOME	8,404			4,420
OTHER INCOME (EXPENSE):
Gain on sale of management contract	6,520			—
Loss on sale of investment securities, net	(1,461		)	—
Interest expense	(2,369		)	(3,817		)
Other income, net	475			570
	3,165			(3,247		)
Other income from consolidated VIE - RSO	11			—
Elimination of consolidated VIE - RSO other income attributable to operating segments	39			—
	3,215			(3,247		)
Income from continuing operations before taxes	11,619			1,173
Income tax provision of consolidated VIE - RSO	1,809			—
Income tax (benefit) provision	(642		)	585
Net income	10,452			588
Net losses attributable to noncontrolling interests - RAI	625			383
Net income attributable to noncontrolling interests of consolidated VIE - RAO	(12,579		)	—
Net (loss) income attributable to common shareholders	$	(1,502	)	$	971
Basic (loss) income per share attributable to common shareholders:
Net (loss) income	$	(0.08	)	$	0.05
Weighted average shares outstanding	19,076			18,689
Diluted (loss) income per share attributable to common shareholders:
Net (loss) income	$	(0.08	)	$	0.05
Weighted average shares outstanding	19,076			18,962

116

RESOURCE AMERICA, INC.

NOTES TO RESTATED CONSOLIDATED FINANCIAL STATEMENTS − (Continued)

SEPTEMBER 30, 2012

Consolidating Statement of Operations
(in thousands, except per share data)
(unaudited)
	For the Three Months Ended December 31, 2010
				Restatement Adjustments
	As Reported			RSO (1)		Eliminations			As Restated
REVENUES:
Real estate	$	6,874		$	—	$	—		$	6,874
Financial fund management	8,330			—		—			8,330
Commercial finance	1,476			—		—			1,476
	16,680			—		—			16,680
Revenues from consolidated VIE - RSO	—			22,638		—			22,638
Elimination of consolidated VIE revenues attributed to operating segments	—			—		(4,036		)	(4,036		)
Total Revenues	16,680			22,638		(4,036		)	35,282
COSTS AND EXPENSES:
Real estate	5,461			—		—			5,461
Financial fund management	6,720			—		—			6,720
Commercial finance	4,273			—		—			4,273
General and administrative	3,116			—		—			3,116
(Gain) loss on sale of leases and loans	(11		)	—		—			(11		)
Provision for credit losses	1,606			—		—			1,606
Depreciation and amortization	1,125			—		—			1,125
	22,290			—		—			22,290
Expenses from consolidated VIE - RSO	—			9,507		(1,809		)	7,698
Elimination of consolidated VIE expenses attributed to operating segments	—			—		(3,110		)	(3,110		)
Total expenses	22,290			9,507		(4,919		)	26,878
OPERATING (LOSS) INCOME	(5,610		)	13,131		883			8,404
OTHER INCOME (EXPENSE):
Gain on sale of management contract	6,520			—		—			6,520
Loss on sale of investment securities, net	(1,461		)	—		—			(1,461		)
Interest expense	(2,369		)	—		—			(2,369		)
Other income, net	1,086			—		(611		)	475
Other income from consolidated VIE - RSO	—			11		—			11
Elimination of consolidated VIE expenses attributed to operating segments	—			—		39			39
	3,776			11		(572		)	3,215
(Loss) income from continuing operations before taxes	(1,834		)	13,142		311			11,619
Income tax (benefit) provision	(642		)	—		1,809			1,167
Net (loss) income	(1,192		)	13,142		(1,498		)	10,452
Net loss attributable to noncontrolling interests	625			—		—			625
Net income attributable to noncontrolling interests - RSO	—			—		(12,579		)	(12,579		)
Net (loss) income attributable to common shareholders	$	(567	)	$	13,142	$	(14,077	)	$	(1,502	)

117

RESOURCE AMERICA, INC.

NOTES TO RESTATED CONSOLIDATED FINANCIAL STATEMENTS − (Continued)

SEPTEMBER 30, 2012

Consolidating Statement of Operations - (Continued)
(in thousands, except per share data)
(unaudited)
	For the Three Months Ended December 31, 2010
				Restatement Adjustments
	As Reported			RSO (1)		Eliminations			As Restated
Amounts attributable to common shareholders:
Income (loss) from continuing operations	$	(567	)	$	13,142	$	(14,077	)	$	(1,502	)
Discontinued operations	—			—		—			—
Net income (loss)	$	(567	)	$	13,142	$	(14,077	)	$	(1,502	)
	As Reported								As Restated
Basic and diluted loss per share:
Continuing operations	$	(0.03	)						$	(0.08	)
Discontinued operations	—								—
Net loss	$	(0.03	)						$	(0.08	)
Weighted average shares outstanding	19,076								19,076

(1)    Includes RSO for the three months ended March 31, 2011.

118

RESOURCE AMERICA, INC.

NOTES TO RESTATED CONSOLIDATED FINANCIAL STATEMENTS − (Continued)

SEPTEMBER 30, 2012

Consolidated Statements of Cash Flows
(in thousands, except per share data)
(unaudited)
	Three Months Ended
	December 31,
	2010			2009
	(Restated)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	10,452		$	588
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization	1,999			3,173
Provision for credit losses	2,405			776
Equity in earnings of unconsolidated entities	(1,427		)	(3,405		)
Distributions from unconsolidated entities	663			1,261
(Gain) loss on sale of leases and loans	(11		)	582
Loss on sale of investment securities, net	1,461			—
Gain on resolution of assets	—			(244		)
Gain on sale of management contract	(6,520		)	—
Deferred income tax benefit	422			34
Equity-based compensation issued	781			1,120
Equity-based compensation received	—			(375		)
Decrease in commercial finance investments	—			8,386
Changes in operating assets and liabilities	(611		)	(13,049		)
Changes in cash attributable to operations of consolidated VIE - RSO	(29,877		)	—
Net cash used in operating activities	(20,263		)	(1,153		)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures	(38		)	(118		)
Investments in unconsolidated real estate entities	(283		)	—
Purchase of commercial finance assets	(10,690		)	—
Purchase of loans and securities by consolidated VIE - RSO	(213,887		)	—
Principal payments and proceeds from sales received by consolidated VIE - RSO	145,670			—
Proceeds from sale of management contract	9,095			—
Purchase of loans and investments	—			(1,640		)
Proceeds from sale of loans and investment securities	2,946			2,274
Increase in restricted cash of consolidated VIE - RSO	(4,053		)	—
Other investing activity of consolidated VIE - RSO	12,437			—
Net cash provided by investing activities	(58,803		)	516
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in borrowings	1,000			45,701
Principal payments on borrowings	(1,908		)	(62,326		)
Net borrowings (repayments) of consolidated VIE - RSO	15,109			—
Dividends paid	(551		)	(540		)
Dividends paid on common stock by consolidated VIE - RSO	(13,944		)	—
Net proceeds from issuance of common stock by consolidated VIE - RSO	76,619			—
Decrease (increase) in debt financing costs	73			(496		)
Decrease in restricted cash	6,617			510
Other financing activity of consolidated VIE - RSO	(662		)	—
Net cash provided by (used in) financing activities	82,353			(17,151		)
Increase (decrease) in cash	3,287			(17,788		)
Cash at beginning of year	11,243			26,197
Cash at end of period	$	14,530		$	8,409

119

RESOURCE AMERICA, INC.

NOTES TO RESTATED CONSOLIDATED FINANCIAL STATEMENTS − (Continued)

SEPTEMBER 30, 2012

Consolidating Statement of Cash Flows
(in thousands, except per share data)
(unaudited)
	For the Three Months Ended December 31, 2010
				Restatement Adjustments
	As Previously Reported			RSO (1)			Eliminations			As Restated
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income	$	(1,192	)	$	13,142		$	(1,498	)	$	10,452
Adjustments to reconcile net (loss) income to net cash used in operating activities:
Depreciation and amortization	1,911			—			88			1,999
Provision for credit losses	1,606			—			799			2,405
Equity in earnings of unconsolidated entities	(1,427		)	—			—			(1,427		)
Distributions from unconsolidated entities	663			—			—			663
Gain on sale of leases and loans	(11		)	—			—			(11		)
Loss on sale of loans and investment securities, net	1,461			—			—			1,461
Gain on sale of management contract	(6,520		)	—			—			(6,520		)
Deferred income tax provision (benefit)	422			—			—			422
Equity-based compensation issued	781			—			—			781
Equity-based compensation received	(57		)	—			57			—
Changes in operating assets and liabilities	(611		)	—			—			(611		)
Changes in cash attributable to operations of consolidated VIE - RSO	—			(29,820		)	(57		)	(29,877		)
Net cash used in operating activities	(2,974		)	(16,678		)	(611		)	(20,263		)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures	(38		)	—			—			(38		)
Investments in unconsolidated real estate entities	(283		)	—			—			(283		)
Purchase of commercial finance assets	(10,690		)	—			—			(10,690		)
Purchase of loans and securities by consolidated VIE - RSO	—			(213,887		)	—			(213,887		)
Principal payments and proceeds from sales received by consolidated VIE - RSO	—			145,670			—			145,670
Proceeds from sale of management contract	9,095			—			—			9,095
Proceeds from sale of loans and investments	2,946			—			—			2,946
Increase in restricted cash of consolidated VIE - RSO	—			(4,053		)	—			(4,053		)
Other investing activity of consolidated VIE - RSO	—			12,437			—			12,437
Net cash provided by (used in) investing activities	1,030			(59,833		)	—			(58,803		)

120

RESOURCE AMERICA, INC.

NOTES TO RESTATED CONSOLIDATED FINANCIAL STATEMENTS − (Continued)

SEPTEMBER 30, 2012

Consolidated Statement of Cash Flows - (Continued)
(in thousands, except per share data)
(unaudited)
	For the Three Months Ended December 31, 2010
				Restatement Adjustments
	As Previously Reported			RSO (1)			Eliminations		As Restated
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in borrowings	1,000			—			—		1,000
Principal payments on borrowings	(1,908		)	—			—		(1,908		)
Net borrowings (repayments) of debt by consolidated VIE - RSO	—			15,109			—		15,109
Dividends paid	(551		)	—			—		(551		)
Dividends paid on common stock by consolidated VIE - RSO	—			(14,555		)	611		(13,944		)
Net proceeds from issuance of common stock by consolidated VIE - RSO	—			76,619			—		76,619
Decrease in restricted cash	6,617			—			—		6,617
Other	73			—			—		73
Other financing activity of consolidated VIE - RSO	—			(662		)	—		(662		)
Net cash provided by financing activities	5,231			76,511			611		82,353
Increase in cash	3,287			—			—		3,287
Cash, beginning of year	11,243			—			—		11,243
Cash, end of period	$	14,530		$	—		$	—	$	14,530

(1)    Includes RSO cash flow for the three months ended March 31, 2011.

121

RESOURCE AMERICA, INC.

NOTES TO RESTATED CONSOLIDATED FINANCIAL STATEMENTS − (Continued)

SEPTEMBER 30, 2012

Consolidated Balance Sheets
(in thousands, except per share data)
(unaudited)
	March 31,			September 30,
	2011			2010
	(Restated)
ASSETS
Cash	$	16,495		$	11,243
Restricted cash	21,446			12,018
Receivables	1,138			1,671
Receivables from managed entities and related parties, net	57,833			66,416
Investments in commercial finance, net	145,961			12,176
Investments in real estate, net	28,555			27,114
Investment securities, at fair value	3,332			22,358
Investments in unconsolidated entities	12,861			13,825
Asset of consolidated variable interest entity ("VIE") - RSO
Cash and cash equivalents (including restricted cash)	235,795			—
Investments, at fair value	158,927			—
Loans	1,465,053			—
Investment in real estate and unconsolidated entities	42,480			—
Other assets	36,636			—
Total assets of consolidated VIE - RSO	1,938,891			—
Property and equipment, net	7,304			9,984
Deferred tax assets	39,989			43,703
Goodwill	7,969			7,969
Other assets	7,594			5,776
Total assets	$	2,289,368		$	234,253
LIABILITIES AND EQUITY
Liabilities:
Accrued expenses and other liabilities	$	34,409		$	38,492
Payables to managed entities and related parties	136			156
Borrowings	178,938			66,110
Deferred tax liabilities	411			411
Liabilities of consolidated VIE - RSO (see Note 19):
Borrowings	1,473,202			—
Other liabilities	64,387			—
Total liabilities of consolidated VIE - RSO	1,537,589			—
Total liabilities	1,751,483			105,169
Commitments and contingencies
Equity:
Preferred stock, $1.00 par value, 1,000,000 shares authorized; none outstanding	—			—
Common stock, $.01 par value, 49,000,000 shares authorized; 28,740,931 and 28,167,909 shares issued, respectively (including nonvested restricted stock of 645,708 and 741,086, respectively)	281			274
Additional paid-in capital	280,906			281,378
Accumulated deficit	(43,805		)	(37,558		)
Treasury stock, at cost; 9,108,440 and 9,125,253 shares, respectively	(99,085		)	(99,330		)
Accumulated other comprehensive loss	(1,653		)	(12,807		)
Total stockholders’ equity	136,644			131,957
Noncontrolling interests	(335		)	(2,873		)
Noncontrolling interest of consolidated VIE - RSO	401,576			—
Total equity	537,885			129,084
	$	2,289,368		$	234,253

122

RESOURCE AMERICA, INC.

NOTES TO RESTATED CONSOLIDATED FINANCIAL STATEMENTS − (Continued)

SEPTEMBER 30, 2012

Consolidating Balance Sheet
(in thousands, except per share data)
(unaudited)
	March 31, 2011
				Restatement Adjustments
	As Previously Reported			RSO at June 30, 2011		Eliminations			As Restated
ASSETS
Cash	$	16,495		$	—	$	—		$	16,495
Restricted cash	21,446			—		—			21,446
Receivables	1,138			—		—			1,138
Receivables from managed entities and related parties, net	59,498			—		(1,665		)	57,833
Investments in commercial finance, net	145,961			—		—			145,961
Investments in real estate, net	27,547			—		1,008			28,555
Investment securities, at fair value	19,469			—		(16,137		)	3,332
Investments in unconsolidated entities	12,861			—		—			12,861
Assets of consolidated VIE - RSO :
Cash and cash equivalents (increase restricted cash)	—			235,795		—			235,795
Investments, at fair value	—			190,069		(31,142		)	158,927
Loans	—			1,466,758		(1,705		)	1,465,053
Investments in real estate and consolidated entities	—			42,480		—			42,480
Other assets - RSO	—			37,532		(896		)	36,636
Total assets of consolidated VIE - RSO	—			1,972,634		(33,743		)	1,938,891
Property and equipment, net	8,312			—		(1,008		)	7,304
Goodwill	7,969			—		—			7,969
Deferred tax assets, net	46,114			—		(6,125		)	39,989
Other assets	7,594			—		—			7,594
Total assets	$	374,404		$	1,972,634	$	(57,670	)	$	2,289,368
LIABILITIES AND EQUITY
Liabilities:
Accrued expenses and other liabilities	$	34,409		$	—	$	—		$	34,409
Payables to managed entities and related parties	297			—		(161		)	136
Borrowings	180,643			—		(1,705		)	178,938
Deferred tax liabilities	411			—		—			411
Liabilities of consolidated VIE - RSO :
Borrowings	—			1,473,202		—			1,473,202
Other liabilities	—			66,052		(1,665		)	64,387
Total liabilities	215,760			1,539,254		(3,531		)	1,751,483
Commitments and contingencies
Equity:
Preferred stock	—			—		—			—
Common stock	281			—		—			281
Additional paid-in capital	280,906			—		—			280,906
Accumulated deficit	(43,496		)	—		(309		)	(43,805		)
Treasury stock, at cost	(99,085		)	—		—			(99,085		)
Accumulated other comprehensive loss	(11,504		)	—		9,851			(1,653		)
Total stockholders’ equity	127,102			—		9,542			136,644
Noncontrolling interests	31,542			—		(31,877		)	(335		)
Noncontrolling interests attributable to RSO	—			433,380		(31,804		)	401,576
Total equity	158,644			433,380		(54,139		)	537,885
	$	374,404		$	1,972,634	$	(57,670	)	$	2,289,368

123

RESOURCE AMERICA, INC.

NOTES TO RESTATED CONSOLIDATED FINANCIAL STATEMENTS − (Continued)

SEPTEMBER 30, 2012

Consolidated Statements of Operations
(unaudited, in thousands, except per share data)
	Three Months Ended						Six Months Ended
	March 31,						March 31,
	2011			2010			2011			2010
	(Restated)						(Restated)
REVENUES:
Real estate (includes $1,202, $880, $2,565 and $2,673 related to RSO)	$	6,258		$	5,770		$	13,132		$	12,717
Commercial finance	6,477			7,409			7,953			16,232
Financial fund management (includes $1,535, $267, $3,937 and $939 related to RSO)	7,612			6,221			15,942			15,873
	20,347			19,400			37,027			44,822
Revenues from consolidated VIE - RSO	26,150			—			48,788			—
Eliminations of consolidated revenues attributed to operating segments	(3,221		)	—			(7,257		)	—
Total Revenues	43,276			19,400			78,558			44,822
COSTS AND EXPENSES:
Real estate	6,088			5,516			11,549			10,243
Financial fund management	5,960			4,700			12,680			9,404
Commercial finance	3,693			4,731			7,966			9,306
General and administrative	2,897			2,768			6,013			6,200
(Gain) loss on sale of leases and loans	(252		)	(31		)	(263		)	551
Provision for credit losses	2,719			1,210			4,325			1,986
Depreciation and amortization	2,921			2,382			4,046			4,588
	24,026			21,276			46,316			42,278
Expenses from consolidated VIE - RSO	15,743			—			23,441			—
Elimination of consolidated expenses attributable to operating segments	(2,389		)	—			(5,499		)	—
Total Expenses	37,380			21,276			64,258			42,278
OPERATING (LOSS) INCOME	5,896			(1,876		)	14,300			2,544
OTHER INCOME (EXPENSE):
Other-than-temporary impairment losses on investments securities	—			(297		)	—			(297		)
Gain on sale of management contract	—			—			6,520			—
Gain (loss) on sale of investment securities, net	97			(424		)	(1,364		)	(424		)
Interest expense	(4,167		)	(3,871		)	(6,536		)	(7,688		)
Other (expense) income, net	(409		)	637			66			1,207
	(4,479		)	(3,955		)	(1,314		)	(7,202		)
Other income from consolidated VIE - RSO	(17		)	—			(6		)	—
Elimination of consolidated other income attributable to operating segments	36			—			75			—
	(4,460		)	(3,955		)	(1,245		)	(7,202		)
Income (loss) from continuing operations before taxes	1,436			(5,831		)	13,055			(4,658		)
Income tax provision - RSO	1,171			—			2,980			—
Income tax benefit	(1,290		)	(3,986		)	(1,932		)	(3,401		)
Income (loss) from continuing operations	1,555			(1,845		)	12,007			(1,257		)
Loss from discontinued operations, net of tax	(2,153		)	(2		)	(2,153		)	(2		)
Net (loss) income	(598		)	(1,847		)	9,854			(1,259		)
Net loss attributable to noncontrolling interests	513			615			1,138			998
Net income attributable to noncontrolling - RSO	(8,868		)	—			(21,447		)	—
Net loss attributable to common shareholders	$	(8,953	)	$	(1,232	)	$	(10,455	)	$	(261	)

124

RESOURCE AMERICA, INC.

NOTES TO RESTATED CONSOLIDATED FINANCIAL STATEMENTS − (Continued)

SEPTEMBER 30, 2012

Consolidated Statements of Operations - (Continued)
(unaudited, in thousands, except per share data)
	Three Months Ended						Six Months Ended
	March 31,						March 31,
	2011			2010			2011			2010
	(Restated)						(Restated)
Amounts attributable to common shareholders:
Loss from continuing operations	$	(6,800	)	$	(1,230	)	$	(8,302	)	$	(259	)
Discontinued operations	(2,153		)	(2		)	(2,153		)	(2		)
Net loss	$	(8,953	)	$	(1,232	)	$	(10,455	)	$	(261	)
Basic and diluted loss per common share:
Continuing operations	$	(0.35	)	$	(0.06	)	$	(0.43	)	$	(0.01	)
Discontinued operations	(0.11		)	—			(0.11		)	—
Net loss	$	(0.46	)	$	(0.06	)	$	(0.54	)	$	(0.01	)
Weighted average shares outstanding	19,355			19,089			19,213			18,888

125

RESOURCE AMERICA, INC.

NOTES TO RESTATED CONSOLIDATED FINANCIAL STATEMENTS − (Continued)

SEPTEMBER 30, 2012

Consolidating Statement of Operations
(unaudited, in thousands, except per share data)
	For the Three Months Ended March 31, 2011
				Restatement Adjustments
	As Previously Reported			RSO (1)			Eliminations			As Restated
REVENUES:	(unaudited)			(unaudited)			(unaudited)			(unaudited)
Real estate	$	6,258		$	—		$	—		$	6,258
Financial fund management	7,612			—			—			7,612
Commercial finance	6,477			—			—			6,477
	20,347			—			—			20,347
Revenues from consolidated VIE - RSO	—			26,150			—			26,150
Elimination of consolidated VIE revenues attributed to operating segments	—			—			(3,221		)	(3,221		)
Total Revenues	20,347			26,150			(3,221		)	43,276
COSTS AND EXPENSES:
Real estate	6,088			—			—			6,088
Financial fund management	5,960			—			—			5,960
Commercial finance	3,693			—			—			3,693
General and administrative	2,897			—			—			2,897
Gain on sale of leases and loans	(252		)	—			—			(252		)
Provision for credit losses	2,719			—			—			2,719
Depreciation and amortization	2,921			—			—			2,921
	24,026			—						24,026
Expenses from consolidated VIE - RSO	—			16,914			(1,171		)	15,743
Elimination of consolidated VIE expenses attributed to operating segments	—			—			(2,389		)	(2,389		)
Total expenses	24,026			16,914			(3,560		)	37,380
OPERATING (LOSS) INCOME	(3,679		)	9,236			339			5,896
OTHER INCOME (EXPENSE):
Gain on extinguishment of servicing and repurchase liabilities	4,426			—			(4,426		)	—
Gain on sale of investment securities, net	97			—			—			97
Interest expense	(4,167		)	—			—			(4,167		)
Other income (expense), net	203			—			(612		)	(409		)
Other income from consolidated VIE - RSO	—			(17		)	—			(17		)
Elimination of consolidated VIE expenses attributed to operating segments	—			—			36			36
	559			(17		)	(5,002		)	(4,460		)
(Loss) income from continuing operations before taxes	(3,120		)	9,219			(4,663		)	1,436
Income tax (benefit) provision	(1,290		)	—			1,171			(119		)
(Loss) income from continuing operations	(1,830		)	9,219			(5,834		)	1,555
Loss from discontinued operations, net of tax	(2,153		)	—			—			(2,153		)
Net (loss) income	(3,983		)	9,219			(5,834		)	(598		)
Net (income) loss attributable to noncontrolling interests	(283		)	—			796			513
Net income attributable to noncontrolling interests - RSO	—			—			(8,868		)	(8,868		)
Net (loss) income attributable to common shareholders	$	(4,266	)	$	9,219		$	(13,906	)	$	(8,953	)

126

RESOURCE AMERICA, INC.

NOTES TO RESTATED CONSOLIDATED FINANCIAL STATEMENTS − (Continued)

SEPTEMBER 30, 2012

Consolidating Statement of Operations - (Continued)
(unaudited, in thousands, except per share data)
	For the Three Months Ended March 31, 2011
				Restatement Adjustments
	As Previously Reported			RSO (1)		Eliminations			As Restated
Amounts attributable to common shareholders:
Income (loss) from continuing operations	$	(2,113	)	$	9,219	$	(13,906	)	$	(6,800	)
Discontinued operations	(2,153		)	—		—			(2,153		)
Net income (loss)	$	(4,266	)	$	9,219	$	(13,906	)	$	(8,953	)
Basic and diluted loss per share:
Continuing operations	$	(0.11	)						$	(0.35	)
Discontinued operations	(0.11		)						(0.11		)
Net loss	$	(0.22	)						$	(0.46	)
Weighted average shares outstanding	19,355								19,355

(1)    Includes RSO for the three months ended June 30, 2011.

127

RESOURCE AMERICA, INC.

NOTES TO RESTATED CONSOLIDATED FINANCIAL STATEMENTS − (Continued)

SEPTEMBER 30, 2012

Consolidating Statement of Operations
(unaudited, in thousands, except per share data)
	For the Six Months Ended March 31, 2011
				Restatement Adjustments
	As Previously Reported			RSO (1)			Eliminations			As Restated
REVENUES:
Real estate	$	13,132		$	—		$	—		$	13,132
Financial fund management	15,942			—			—			15,942
Commercial finance	7,953			—			—			7,953
	37,027			—			—			37,027
Revenues from consolidated VIE - RSO	—			48,788			—			48,788
Elimination of consolidated VIE revenues attributed to operating segments	—			—			(7,257		)	(7,257		)
Total Revenues	37,027			48,788			(7,257		)	78,558
COSTS AND EXPENSES:
Real estate	11,549			—			—			11,549
Financial fund management	12,680			—			—			12,680
Commercial finance	7,966			—			—			7,966
General and administrative	6,013			—			—			6,013
Gain on sale of leases and loans	(263		)	—			—			(263		)
Provision for credit losses	4,325			—			—			4,325
Depreciation and amortization	4,046			—			—			4,046
	46,316			—			—			46,316
Expenses from consolidated VIE - RSO	—			26,421			(2,980		)	23,441
Elimination of consolidated VIE expenses attributed to operating segments	—			—			(5,499		)	(5,499		)
Total expenses	46,316			26,421			(8,479		)	64,258
OPERATING (LOSS) INCOME	(9,289		)	22,367			1,222			14,300
OTHER INCOME (EXPENSE):
Gain on sale of management contract	6,520			—			—			6,520
Gain on extinguishment of servicing and repurchase liabilities	4,426			—			(4,426		)	—
Loss on sale of investment securities, net	(1,364		)	—			—			(1,364		)
Interest expense	(6,536		)	—			—			(6,536		)
Other income (expense), net	1,289			—			(1,223		)	66
Other expenses from consolidated VIE - RSO	—			(6		)	—			(6		)
Elimination of consolidated VIE expenses attributed to operating segments	—			—			75			75
	4,335			(6		)	(5,574		)	(1,245		)
(Loss) income from continuing operations before taxes	(4,954		)	22,361			(4,352		)	13,055
Income tax (benefit) provision	(1,932		)	—			2,980			1,048
(Loss) income from continuing operations	(3,022		)	22,361			(7,332		)	12,007
Loss from discontinued operations, net of tax	(2,153		)	—			—			(2,153		)
Net (loss) income	(5,175		)	22,361			(7,332		)	9,854
Net loss attributable to noncontrolling interests	342			—			796			1,138
Net income attributable to noncontrolling interests - RSO	—			—			(21,447		)	(21,447		)
Net (loss) income attributable to common shareholders	$	(4,833	)	$	22,361		$	(27,983	)	$	(10,455	)

128

RESOURCE AMERICA, INC.

NOTES TO RESTATED CONSOLIDATED FINANCIAL STATEMENTS − (Continued)

SEPTEMBER 30, 2012

Consolidating Statement of Operations - (Continued)
(unaudited, in thousands, except per share data)
	For the Six Months Ended March 31, 2011
				Restatement Adjustments
	As Previously Reported			RSO (1)		Eliminations			As Restated
Amounts attributable to common shareholders:
(Loss) income from continuing operations	$	(2,680	)	$	22,361	$	(27,983	)	$	(8,302	)
Discontinued operations	(2,153		)	—		—			(2,153		)
Net (loss) income	$	(4,833	)	$	22,361	$	(27,983	)	$	(10,455	)
Basic and diluted loss per common share:
Continuing operations	$	(0.14	)						$	(0.43	)
Discontinued operations	(0.11		)						(0.11		)
Net loss	$	(0.25	)						$	(0.54	)
Weighted average shares outstanding	19,213								19,213

(1)    Includes RSO for the six months ended June 30, 2011.

129

RESOURCE AMERICA, INC.

NOTES TO RESTATED CONSOLIDATED FINANCIAL STATEMENTS − (Continued)

SEPTEMBER 30, 2012

Consolidated Statements of Cash Flows
(in thousands, except per share data)
	Six Months Ended
	March 31,
	2011			2010
	(Restated)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	9,854		$	(1,259	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization	6,331			6,721
Net other-than-temporary impairment losses recognized in earnings	—			297
Provision for credit losses	5,124			1,986
Equity in earnings of unconsolidated entities	(1,944		)	(3,441		)
Distributions from unconsolidated entities	2,751			2,701
(Gain) loss on sale of leases and loans	(263		)	551
Loss on sale of investment securities, net	1,364			424
Gain on resolution of assets	—			(287		)
Gain on sale of management contract	(6,520		)	—
Deferred income tax (benefit) provision	(3,065		)	33
Equity-based compensation issued	1,401			2,014
Equity-based compensation received	—			(375		)
Decrease in commercial finance investments	—			37,182
Loss from discontinued operations	2,153			2
Changes in operating assets and liabilities	(1,047		)	(19,657		)
Changes in cash attributable to operations of consolidated VIE - RSO	(16,604		)	—
Net cash provided by operating activities	(465		)	26,892
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures	(411		)	(236		)
Payments received on real estate loans and real estate	—			2,885
Investments in unconsolidated real estate entities	(419		)	(1,512		)
Purchase of commercial finance assets	(25,790		)	—
Purchase of loans and securities by consolidated VIE - RSO	(436,374		)	—
Principal payments and proceeds from sales received by consolidated VIE - RSO	295,166			—
Proceeds from sale of management contract	9,095			—
Purchase of loans and investments	—			(1,011		)
Proceeds from sale of loans and investments	3,341			1,510
Principal payments received on loans	—			333
Increase in restricted cash of consolidated VIE- RSO	(20,023		)	—
Other investing activity of consolidated VIE - RSO	74,511			—
Net cash (used in) provided by investing activities	(100,904		)	1,969

130

RESOURCE AMERICA, INC.

NOTES TO RESTATED CONSOLIDATED FINANCIAL STATEMENTS − (Continued)

SEPTEMBER 30, 2012

Consolidated Statements of Cash Flows - (Continued)
(in thousands, except per share data)
	Six Months Ended
	March 31,
	2011			2010
	(Restated)
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in borrowings	31,000			71,001
Principal payments on borrowings	(13,756		)	(116,525		)
Net borrowings (repayments) of consolidated VIE - RSO	23,687			—
Dividends paid	(1,105		)	(1,088		)
Dividends paid by consolidated VIE - RSO	(30,922		)	—
Proceeds from issuance of common stock	1,853			58
Net proceeds from issuance of stock by consolidated VIE	100,946			—
Other	(1,075		)	(1,374		)
(Decrease) increase in restricted cash	(3,518		)	194
Other financing activity of consolidated VIE - RSO	(541		)	—
Net cash provided by (used in) financing activities	106,569			(47,734		)
CASH FLOWS FROM DISCONTINUED OPERATIONS
Operating	52			—
Net cash provided by discontinued operations	52			—
Increase (decrease) in cash	5,252			(18,873		)
Cash at beginning of year	11,243			26,197
Cash at end of period	$	16,495		$	7,324

131

RESOURCE AMERICA, INC.

NOTES TO RESTATED CONSOLIDATED FINANCIAL STATEMENTS − (Continued)

SEPTEMBER 30, 2012

Consolidating Statement of Cash Flows
(in thousands, except per share data)
(unaudited)
	For the Six Months Ended March 31, 2011
				Restatement Adjustments
	As Previously Reported			RSO (1)			Eliminations			As Restated
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income	$	(5,175	)	$	22,361		$	(7,332	)	$	9,854
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:
Depreciation and amortization	6,243						88			6,331
Provision for credit losses	4,325			—			799			5,124
Equity in earnings of unconsolidated entities	(1,944		)	—			—			(1,944		)
Distributions from unconsolidated entities	2,751			—			—			2,751
Gain on sale of leases and loans	(263		)	—			—			(263		)
Loss on sale of loans and investment securities, net	1,364			—			—			1,364
Gain on sale of management contract	(6,520		)	—			—			(6,520		)
Gain on extinguishment of servicing and repurchase liabilities	(4,426		)	—			4,426			—
Deferred income tax benefit	(3,065		)	—			—			(3,065		)
Equity-based compensation issued	1,401			—			—			1,401
Equity-based compensation received	(33		)	—			33			—
Loss from discontinued operations	2,153			—			—			2,153
Changes in operating assets and liabilities	(1,047		)	—			—			(1,047		)
Change in cash attributable to operating activity of consolidated VIE - RSO	—			(17,367		)	763			(16,604		)
Net cash (used in) provided by operating activities	(4,236		)	4,994			(1,223		)	(465		)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures	(411		)	—			—			(411		)
Investments in unconsolidated real estate entities	(419		)	—			—			(419		)
Purchase of commercial finance assets	(25,790		)	—			—			(25,790		)
Purchase of loans and securities by consolidated VIE - RSO	—			(446,595		)	10,221			(436,374		)
Principal payments and proceeds from sales received by consolidated VIE - RSO	—			295,166			—			295,166
Proceeds from sale of management contract	9,095			—			—			9,095
Proceeds from sale of loans and investments	3,341			—			—			3,341
Increase in restricted cash of consolidated VIE- RSO	—			(20,023		)	—			(20,023		)
Other investing activity of consolidated VIE - RSO	—			74,511			—			74,511
Net cash (used in) provided by investing activities	(14,184		)	(96,941		)	10,221			(100,904		)

132

RESOURCE AMERICA, INC.

NOTES TO RESTATED CONSOLIDATED FINANCIAL STATEMENTS − (Continued)

SEPTEMBER 30, 2012

Consolidating Statement of Cash Flows - (Continued)
(in thousands, except per share data)
(unaudited)
	For the Six Months Ended March 31, 2011
				Restatement Adjustments
	As Previously Reported			RSO (1)			Eliminations			As Restated
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in borrowings	31,000			—			—			31,000
Principal payments on borrowings	(13,756		)	—			—			(13,756		)
Net borrowings (repayments) of debt by consolidated VIE - RSO	—			23,687			—			23,687
Dividends paid	(1,105		)	—			—			(1,105		)
Dividends paid on common stock by consolidated VIE - RSO	—			(32,145		)	1,223			(30,922		)
Proceeds from issuance of common stock	1,853			—			—			1,853
Net proceeds from issuance of common stock by consolidated VIE - RSO				100,946			—			100,946
Proceeds from issuance of LEAF preferred stock	10,221			—			(10,221		)	—
Increase in restricted cash	(3,518		)	—			—			(3,518		)
Other	(1,075		)	—			—			(1,075		)
Other financing activity of consolidated VIE - RSO	—			(541		)	—			(541		)
Net cash provided by (used in) financing activities	23,620			91,947			(8,998		)	106,569
CASH FLOWS FROM DISCONTINUED OPERATIONS:
Operating activities	52			—			—			52
Net cash provided by discontinued operations	52			—			—			52
Increase in cash	5,252			—			—			5,252
Cash, beginning of year	11,243			—			—			11,243
Cash, end of period	$	16,495		$	—		$	—		$	16,495

(1)    Includes RSO for the six months ended June 30, 2011.

133

RESOURCE AMERICA, INC.

NOTES TO RESTATED CONSOLIDATED FINANCIAL STATEMENTS − (Continued)

SEPTEMBER 30, 2012

Consolidated Balance Sheets
(in thousands, except per share data)
(unaudited)
	June 30,			September 30,
	2011			2010
	(Restated)
ASSETS
Cash	$	28,553		$	11,243
Restricted cash	17,767			12,018
Receivables	1,115			1,671
Receivables from managed entities and related parties, net	54,485			66,416
Investments in commercial finance, net	164,977			12,176
Investments in real estate, net	18,307			27,114
Investment securities, at fair value	3,159			22,358
Investments in unconsolidated entities	12,256			13,825
Asset of consolidated variable interest entity ("VIE") - RSO	—			—
Cash and cash equivalents (including restricted cash)	177,412			—
Investments, at fair value	175,375			—
Loans	1,682,252			—
Investment in real estate and unconsolidated entities	59,295			—
Other assets	36,281			—
Total assets of consolidated VIE - RSO	2,130,615			—
Property and equipment, net	7,104			9,984
Deferred tax assets	39,784			43,703
Goodwill	7,969			7,969
Other assets	13,386			5,776
Total assets	$	2,499,477		$	234,253
LIABILITIES AND EQUITY
Liabilities:
Accrued expenses and other liabilities	$	39,545		$	38,492
Payables to managed entities and related parties	—			156
Borrowings	188,128			66,110
Deferred tax liabilities	411			411
Liabilities of consolidated VIE -- RSO:
Borrowings	1,549,674			—
Other liabilities	184,845			—
Total liabilities of consolidated VIE - RSO	1,734,519			—
Total liabilities	1,962,603			105,169
Commitments and contingencies
Equity:
Preferred stock, $1.00 par value, 1,000,000 shares authorized; none outstanding	—			—
Common stock, $.01 par value, 49,000,000 shares authorized; 28,760,970 and 28,167,909 shares issued, respectively (including nonvested restricted stock of 641,496 and 741,086, respectively)	281			274
Additional paid-in capital	281,372			281,378
Accumulated deficit	(44,892		)	(37,558		)
Treasury stock, at cost; 9,089,723 and 9,125,253 shares, respectively	(98,874		)	(99,330		)
Accumulated other comprehensive loss	(1,709		)	(12,807		)
Total stockholders’ equity	136,178			131,957
Noncontrolling interests	(870		)	(2,873		)
Noncontrolling interests of consolidated VIE - RSO	401,566			—
Total equity	536,874			129,084
	$	2,499,477		$	234,253

134

RESOURCE AMERICA, INC.

NOTES TO RESTATED CONSOLIDATED FINANCIAL STATEMENTS − (Continued)

SEPTEMBER 30, 2012

Consolidating Balance Sheet
(in thousands, except per share data)
(unaudited)
	June 30, 2011
				Restatement Adjustments
	As Previously Reported			RSO at September 30, 2011		Eliminations			As Restated
ASSETS
Cash	$	28,553		$	—	$	—		$	28,553
Restricted cash	17,767			—		—			17,767
Receivables	1,115			—		—			1,115
Receivables from managed entities and related parties, net	56,946			—		(2,461		)	54,485
Investments in commercial finance, net	164,977			—		—			164,977
Investments in real estate, net	17,331			—		976			18,307
Investment securities, at fair value	18,635			—		(15,476		)	3,159
Investments in unconsolidated entities	12,256			—		—			12,256
Assets of consolidated VIE - RSO:
Cash and cash equivalents (increase restricted cash)	—			177,412		—			177,412
Investments, at fair value	—			211,649		(36,274		)	175,375
Loans	—			1,683,957		(1,705		)	1,682,252
Investments in real estate and consolidated entities	—			59,295		—			59,295
Other assets - RSO	—			37,929		(1,648		)	36,281
Total assets of consolidated VIE - RSO	—			2,170,242		(39,627		)	2,130,615
Property and equipment, net	8,080			—		(976		)	7,104
Goodwill	7,969			—		—			7,969
Deferred tax assets, net	46,190			—		(6,406		)	39,784
Other assets	13,386			—		—			13,386
Total assets	$	393,205		$	2,170,242	$	(63,970	)	$	2,499,477
LIABILITIES AND EQUITY
Liabilities:
Accrued expenses and other liabilities	$	39,545		$	—	$	—		$	39,545
Payables to managed entities and related parties	204			—		(204		)	—
Borrowings	189,833			—		(1,705		)	188,128
Deferred tax liabilities	411			—		—			411
Liabilities of consolidated VIE - RSO:
Borrowings	—			1,549,674		—			1,549,674
Other liabilities	—			187,304		(2,459		)	184,845
Total liabilities	229,993			1,736,978		(4,368		)	1,962,603
Commitments and contingencies
Equity:
Preferred stock	—			—		—			—
Common stock	281			—		—			281
Additional paid-in capital	281,372			—		—			281,372
Accumulated deficit	(44,477		)	—		(415		)	(44,892		)
Treasury stock, at cost	(98,874		)	—		—			(98,874		)
Accumulated other comprehensive loss	(11,940		)	—		10,231			(1,709		)
Total stockholders’ equity	126,362			—		9,816			136,178
Noncontrolling interests	36,850			—		(37,720		)	(870		)
Noncontrolling interests attributable to RSO	—			433,264		(31,698		)	401,566
Total equity	163,212			433,264		(59,602		)	536,874
	$	393,205		$	2,170,242	$	(63,970	)	$	2,499,477

135

RESOURCE AMERICA, INC.

NOTES TO RESTATED CONSOLIDATED FINANCIAL STATEMENTS − (Continued)

SEPTEMBER 30, 2012

Consolidated Statements of Operations
(unaudited, in thousands, except per share data)
	Three Months Ended						Nine Months Ended
	June 30,						June 30,
	2011			2010			2011			2010
	(Restated)						(Restated)
REVENUES:
Real estate (includes $2,085, $2,945, $4,650, and $5,618 related to RSO)	$	15,873		$	11,162		$	29,005		$	23,879
Commercial finance (includes $0, $139, $144, and $287 related to RSO)	6,464			5,592			14,417			21,824
Financial fund management (includes $721, $1,257, $4,658, and $2,197 related to RSO)	5,252			8,484			21,194			24,357
	27,589			25,238			64,616			70,060
Revenues from consolidated VIE RSO	21,987			—			70,775			—
Eliminations of consolidated revenues attributed to operating segments	(3,632		)	—			(10,889		)	—
Total Revenues	45,944			25,238			124,502			70,060
COSTS AND EXPENSES:
Real estate	6,727			5,856			18,276			16,099
Commercial finance	3,709			4,512			11,675			13,818
Financial fund management	4,234			6,471			16,914			15,875
General and administrative	2,614			2,946			8,627			9,146
(Gain) loss on sale of leases and loans	(94		)	7,154			(357		)	7,705
Provision for credit losses	3,476			1,428			7,801			3,414
Depreciation and amortization	3,159			2,005			7,205			6,593
	23,825			30,372			70,141			72,650
Expenses from consolidated VIE	9,631			—			33,072			—
Elimination of consolidated expenses attributable to operating segments	(2,582		)	—			(8,081		)	—
Total Expenses	30,874			30,372			95,132			72,650
OPERATING INCOME (LOSS)	15,070			(5,134		)	29,370			(2,590		)
OTHER INCOME (EXPENSE):
Impairment loss recognized in earnings	—			(67		)	—			(364		)
Gain on sale of management contract	—			—			6,520			—
Gain (loss) on sale of investment securities, net	82			(27		)	(1,282		)	(451		)
Interest expense	(4,276		)	(3,504		)	(10,812		)	(11,192		)
Other income, net	84			739			150			1,946
	(4,110		)	(2,859		)	(5,424		)	(10,061		)
Other income from consolidated VIE	3,875			—			3,869			—
Elimination of consolidated other income attributable to operating segments	34			—			109			—
	(201		)	(2,859		)	(1,446		)	(10,061		)
Income (loss) from continuing operations before taxes	14,869			(7,993		)	27,924			(12,651		)
Income tax provision - RSO	1,289			—			4,269			—
Income tax provision (benefit)	151			(1,404		)	(1,781		)	(4,805		)
Income (loss) from continuing operations	13,429			(6,589		)	25,436			(7,846		)
Loss from discontinued operations, net of tax	(23		)	(1		)	(2,176		)	(3		)
Net income (loss)	13,406			(6,590		)	23,260			(7,849		)
Net loss attributable to noncontrolling interests	513			1,275			1,651			2,273
Net income attributable to noncontrolling - RSO	(14,436		)	—			(35,883		)	—
Net loss attributable to common shareholders	$	(517	)	$	(5,315	)	$	(10,972	)	$	(5,576	)

136

RESOURCE AMERICA, INC.

NOTES TO RESTATED CONSOLIDATED FINANCIAL STATEMENTS − (Continued)

SEPTEMBER 30, 2012

Consolidated Statements of Operations - (Continued)
(unaudited, in thousands, except per share data)
	Three Months Ended						Nine Months Ended
	June 30,						June 30,
	2011			2010			2011			2010
	(Restated)						(Restated)
Amounts attributable to common shareholders:
Loss from continuing operations	$	(494	)	$	(5,314	)	$	(8,796	)	$	(5,573	)
Discontinued operations	(23		)	(1		)	(2,176		)	(3		)
Net loss	$	(517	)	$	(5,315	)	$	(10,972	)	$	(5,576	)
Basic and diluted loss per common share:
Continuing operations	$	(0.03	)	$	(0.28	)	$	(0.46	)	$	(0.29	)
Discontinued operations	—			—			(0.11		)	—
Net loss	$	(0.03	)	$	(0.28	)	$	(0.57	)	$	(0.29	)
Weighted average shares outstanding	19,741			19,140			19,389			18,972

137

RESOURCE AMERICA, INC.

NOTES TO RESTATED CONSOLIDATED FINANCIAL STATEMENTS − (Continued)

SEPTEMBER 30, 2012

Consolidating Statement of Operations
(in thousands, except per share data)
	For the Three Months Ended June 30, 2011
				Restatement Adjustments
	As Previously Reported			RSO (1)		Eliminations			Restated
REVENUES:	(unaudited)			(unaudited)		(unaudited)			(unaudited)
Real estate	$	15,873		$	—	$	—		$	15,873
Financial fund management	5,252			—		—			5,252
Commercial finance	6,464			—		—			6,464
	27,589			—		—			27,589
Revenues from consolidated VIE - RSO	—			21,987					21,987
Elimination of consolidated VIE revenues attributed to operating segments	—					(3,632		)	(3,632		)
Total Revenues	27,589			21,987		(3,632		)	45,944
COSTS AND EXPENSES:
Real estate	6,727			—		—			6,727
Financial fund management	4,234			—		—			4,234
Commercial finance	3,709			—		—			3,709
General and administrative	2,614			—		—			2,614
Gain on sale of leases and loans	(94		)	—		—			(94		)
Provision for credit losses	3,476			—		—			3,476
Depreciation and amortization	3,159			—		—			3,159
	23,825			—		—			23,825
Expenses from consolidated VIE - RSO	—			10,920		(1,289		)	9,631
Elimination of consolidated VIE expenses attributed to operating segments	—			—		(2,582		)	(2,582		)
Total expenses	23,825			10,920		(3,871		)	30,874
OPERATING INCOME	3,764			11,067		239			15,070
OTHER INCOME (EXPENSE):
Gain on sale of investment securities, net	82			—		—			82
Interest expense	(4,276		)	—		—			(4,276		)
Other income, net	696			—		(612		)	84
Other income from consolidated VIE - RSO	—			3,875		—			3,875
Elimination of consolidated VIE expenses attributed to operating segments	—			—		34			34
	(3,498		)	3,875		(578		)	(201		)
Income (loss) from continuing operations before taxes	266			14,942		(339		)	14,869
Income tax provision	151			—		1,289			1,440
Income (loss) from continuing operations	115			14,942		(1,628		)	13,429
Loss from discontinued operations, net of tax	(23		)	—		—			(23		)
Net income (loss)	92			14,942		(1,628		)	13,406
Net (loss) income attributable to noncontrolling interests	(503		)	—		1,016			513
Net income attributable to noncontrolling interests - RSO	—			—		(14,436		)	(14,436		)
Net (loss) income attributable to common shareholders	$	(411	)	$	14,942	$	(15,048	)	$	(517	)

138

RESOURCE AMERICA, INC.

NOTES TO RESTATED CONSOLIDATED FINANCIAL STATEMENTS − (Continued)

SEPTEMBER 30, 2012

Consolidating Statement of Operations
(in thousands, except per share data)
	For the Three Months Ended June 30, 2011
				Restatement Adjustments
	As Previously Reported			RSO (1)		Eliminations			Restated
Amounts attributable to common shareholders:
(Loss) income from continuing operations	$	(388	)	$	14,942	$	(15,048	)	$	(494	)
Discontinued operations	(23		)	—		—			(23		)
Net (loss) income	$	(411	)	$	14,942	$	(15,048	)	$	(517	)
Basic and diluted loss per share:
Continuing operations	$	(0.02	)						$	(0.03	)
Discontinued operations	—								—
Net income (loss)	$	(0.02	)						$	(0.03	)
Weighted average shares outstanding	19,741								19,741

(1)     Includes RSO for the three months ended September 30, 2011

139

RESOURCE AMERICA, INC.

NOTES TO RESTATED CONSOLIDATED FINANCIAL STATEMENTS − (Continued)

SEPTEMBER 30, 2012

Consolidating Statement of Operations
(in thousands, except per share data)
	For the Nine Months Ended June 30, 2011
				Restatement Adjustments
	As Previously Reported			RSO (1)		Eliminations			As Restated
REVENUES:	(unaudited)			(unaudited)		(unaudited)			(unaudited)
Real estate	$	29,005		$	—	$	—		$	29,005
Financial fund management	21,194			—		—			21,194
Commercial finance	14,417			—		—			14,417
	64,616			—		—			64,616
Revenues from consolidated VIE - RSO	—			70,775					70,775
Elimination of consolidated VIE revenues attributed to operating segments	—					(10,889		)	(10,889		)
Total Revenues	64,616			70,775		(10,889		)	124,502
COSTS AND EXPENSES:
Real estate	18,276			—		—			18,276
Financial fund management	16,914			—		—			16,914
Commercial finance	11,675			—		—			11,675
General and administrative	8,627			—		—			8,627
Gain on sale of leases and loans	(357		)	—		—			(357		)
Provision for credit losses	7,801			—		—			7,801
Depreciation and amortization	7,205			—		—			7,205
	70,141			—		—			70,141
Expenses from consolidated VIE - RSO	—			37,341		(4,269		)	33,072
Elimination of consolidated VIE expenses attributed to operating segments	—			—		(8,081		)	(8,081		)
Total Expenses	70,141			37,341		(12,350		)	95,132
OPERATING (LOSS) INCOME	(5,525		)	33,434		1,461			29,370
OTHER INCOME (EXPENSE):
Gain on sale of management contract	6,520			—		—			6,520
Gain on extinguishment of servicing and repurchase liabilities	4,426			—		(4,426		)	—
Loss on sale of investment securities, net	(1,282		)	—		—			(1,282		)
Interest expense	(10,812		)	—		—			(10,812		)
Other income, net	1,985			—		(1,835		)	150
Other income from consolidated VIE - RSO	—			3,869		—			3,869
Elimination of consolidated VIE expenses attributed to operating segments	—			—		109			109
	837			3,869		(6,152		)	(1,446		)
(Loss) income from continuing operations before taxes	(4,688		)	37,303		(4,691		)	27,924
Income tax (benefit) provision	(1,781		)	—		4,269			2,488
(Loss) income from continuing operations	(2,907		)	37,303		(8,960		)	25,436
Loss from discontinued operations, net of tax	(2,176		)	—		—			(2,176		)
Net (loss) income	(5,083		)	37,303		(8,960		)	23,260
Net (loss) income attributable to noncontrolling interests	(161		)	—		1,812			1,651
Net income attributable to noncontrolling interests - RSO	—			—		(35,883		)	(35,883		)
Net (loss) income attributable to common shareholders	$	(5,244	)	$	37,303	$	(43,031	)	$	(10,972	)

140

RESOURCE AMERICA, INC.

NOTES TO RESTATED CONSOLIDATED FINANCIAL STATEMENTS − (Continued)

SEPTEMBER 30, 2012

Consolidating Statement of Operations - (Continued)
(in thousands, except per share data)
	For the Nine Months Ended June 30, 2011
				Restatement Adjustments
	As Previously Reported			RSO (1)		Eliminations			As Restated
Amounts attributable to common shareholders:
(Loss) income from continuing operations	$	(3,068	)	$	37,303	$	(43,031	)	$	(8,796	)
Discontinued operations	(2,176		)	—		—			(2,176		)
Net (loss) income	$	(5,244	)	$	37,303	$	(43,031	)	$	(10,972	)
Basic and diluted loss per share:
Continuing operations	$	(0.16	)						$	(0.46	)
Discontinued operations	(0.11		)						(0.11		)
Net loss	$	(0.27	)						$	(0.57	)
Weighted average shares outstanding	19,389								19,389

(1)    Includes RSO for the nine months ended September 30, 2011

141

RESOURCE AMERICA, INC.

NOTES TO RESTATED CONSOLIDATED FINANCIAL STATEMENTS − (Continued)

SEPTEMBER 30, 2012

Consolidated Statements of Cash Flows
(unaudited, in thousands, except per share data)
	Nine Months Ended
	June 30.
	2011			2010
	(Restated)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	23,260		$	(7,849	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization	10,955			10,192
Net other-than-temporary impairment losses recognized in earnings	—			364
Provision for credit losses	8,600			3,414
Equity in earnings of unconsolidated entities	(9,367		)	(4,098		)
Distributions from unconsolidated entities	5,018			3,823
(Gain) loss on sale of leases and loans	(357		)	7,705
Loss on sale of investment securities, net	1,282			451
Gain on resolution of assets	—			(2,040		)
Gain on sale of management contract	(6,520		)	—
Deferred income tax (benefit) provision	(1,667		)	29
Equity-based compensation issued	1,963			2,874
Equity-based compensation received	—			(1,118		)
Decrease in commercial finance investments	—			30,959
Loss from discontinued operations	2,176			3
Changes in operating assets and liabilities	(2,983		)	(21,723		)
Change in cash attributable to operating activity of consolidated VIE - RSO	(14,293		)	—
Net cash provided by operating activities	18,067			22,986
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures	(739		)	(320		)
Payments received on real estate loans and real estate	16,291			8,355
Investments in unconsolidated real estate entities	(854		)	(1,908		)
Purchase of commercial finance assets	(65,762		)	—
Principal payments received on leases and loans	18,732			—
Purchase of loans and securities by consolidated VIE - RSO	(592,226		)	—
Principal payments and proceeds from sales received by consolidated VIE - RSO	370,238			—
Proceeds from sale of management contract	9,095			—
Purchase of loans and investments	—			(1,011		)
Proceeds from sale of loans and investments	3,534			2,740
Increase in restricted cash of consolidated VIE- RSO	22,334			—
Other investing activity of consolidated VIE - RSO	81,704			—
Net cash (used in) provided by investing activities	(137,653		)	7,856

142

RESOURCE AMERICA, INC.

NOTES TO RESTATED CONSOLIDATED FINANCIAL STATEMENTS − (Continued)

SEPTEMBER 30, 2012

Consolidated Statements of Cash Flows - (Continued)
(unaudited, in thousands, except per share data)
	Nine Months Ended
	June 30.
	2011			2010
	(Restated)
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in borrowings	66,217			81,802
Principal payments on borrowings	(45,776		)	(127,889		)
Net borrowings (repayments) of debt by consolidated VIE - RSO	50,411			—
Dividends paid	(1,675		)	(1,087		)
Dividends paid on equity of consolidated VIE - RSO	(48,877		)	—
Proceeds from issuance of common stock	1,914			58
Net proceeds from issuance of common stock by consolidated VIE - RSO	112,449			—
Other	(1,992		)	(1,824		)
Increase in restricted cash	4,947			1,068
Other financing activity of consolidated VIE - RSO	(541		)	—
Net cash provided by (used in) financing activities	137,077			(47,872		)
CASH FLOWS FROM DISCONTINUED OPERATIONS:
Operating activities	(181		)	(3		)
Net cash used in discontinued operations	(181		)	(3		)
Increase (decrease) in cash	17,310			(17,033		)
Cash at beginning of year	11,243			26,197
Cash at end of period	$	28,553		$	9,164

143

RESOURCE AMERICA, INC.

NOTES TO RESTATED CONSOLIDATED FINANCIAL STATEMENTS − (Continued)

SEPTEMBER 30, 2012

Consolidating Statement of Cash Flows
(in thousands, except per share data)
(unaudited)
	For the Nine Months Ended June 30, 2011
				Restatement Adjustments
	As Previously Reported			RSO (1)			Eliminations			As Restated
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income	$	(5,083	)	$	37,303		$	(8,960	)	$	23,260
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:
Depreciation and amortization	10,867			—			88			10,955
Provision for credit losses	7,801			—			799			8,600
Equity in earnings of unconsolidated entities	(9,367		)	—			—			(9,367		)
Distributions from unconsolidated entities	5,018			—			—			5,018
Gain on sale of leases and loans	(357		)	—			—			(357		)
Loss on sale of loans and investment securities, net	1,282			—			—			1,282
Gain on sale of management contract	(6,520		)	—			—			(6,520		)
Gain on extinguishment of servicing and repurchase liabilities	(4,426		)	—			4,426			—
Deferred income tax benefit	(1,667		)	—			—			(1,667		)
Equity-based compensation issued	1,963			—			—			1,963
Equity-based compensation received	(234		)	—			234			—
Loss from discontinued operations	2,176			—			—			2,176
Changes in operating assets and liabilities	(2,983		)	—			—			(2,983		)
Change in cash attributable to operating activity of consolidated VIE -RSO	—			(15,871		)	1,578			(14,293		)
Net cash (used in) provided by operating activities	(1,530		)	21,432			(1,835		)	18,067
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures	(739		)	—			—			(739		)
Payments received on real estate loans and real estate	16,291			—			—			16,291
Investments in unconsolidated real estate entities	(854		)	—			—			(854		)
Purchase of commercial finance assets	(65,762		)	—			—			(65,762		)
Principal payments received on leases and loans	18,732			—			—			18,732
Purchase of loans and securities by consolidated VIE - RSO	—			(607,447		)	15,221			(592,226		)
Principal payments and proceeds from sales received by consolidated VIE - RSO	—			370,238			—			370,238
Proceeds from sale of management contract	9,095			—			—			9,095
Proceeds from sale of loans and investments	3,534			—			—			3,534
Increase in restricted cash of consolidated VIE- RSO	—			22,334			—			22,334
Other investing activity of consolidated VIE - RSO	—			81,836			(132		)	81,704
Net cash provided by (used in) investing activities	(19,703		)	(133,039		)	15,089			(137,653		)

144

RESOURCE AMERICA, INC.

NOTES TO RESTATED CONSOLIDATED FINANCIAL STATEMENTS − (Continued)

SEPTEMBER 30, 2012

Consolidating Statement of Cash Flows - (Continued)
(in thousands, except per share data)
(unaudited)
	For the Nine Months Ended June 30, 2011
				Restatement Adjustments
	As Previously Reported			RSO (1)			Eliminations			As Restated
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in borrowings	66,217			—			—			66,217
Principal payments on borrowings	(45,776		)	—			—			(45,776		)
Net borrowings (repayments) of debt by consolidated VIE - RSO	—			50,411			—			50,411
Dividends paid	(1,675		)	—			—			(1,675		)
Dividends paid on common stock by consolidated VIE - RSO	—			(50,712		)	1,835			(48,877		)
Proceeds from issuance of common stock	1,914			—			—			1,914
Net proceeds from issuance of common stock by consolidated VIE - RSO	—			112,449			—			112,449
Proceeds from issuance of LEAF preferred stock	15,221			—			(15,221		)	—
Preferred stock dividends paid by LEAF to RSO	(132		)	—			132			—
Decrease in restricted cash	4,947			—			—			4,947
Other	(1,992		)	—			—			(1,992		)
Other financing activity of consolidated VIE - RSO	—			(541		)	—			(541		)
Net cash provided by (used in) financing activities	38,724			111,607			(13,254		)	137,077
CASH FLOWS FROM DISCONTINUED OPERATIONS:
Operating activities	(181		)	—			—			(181		)
Net cash used in discontinued operations	(181		)	—			—			(181		)
Increase in cash	17,310			—			—			17,310
Cash, beginning of year	11,243			—			—			11,243
Cash, end of period	$	28,553		$	—		$	—		$	28,553

(1)    Includes RSO for the nine months September 30, 2011.

145

RESOURCE AMERICA, INC.

NOTES TO RESTATED CONSOLIDATED FINANCIAL STATEMENTS − (Continued)

SEPTEMBER 30, 2012

The following table sets forth the Company's operating results by quarter for the twelve months ended September 30, 2012 which includes RSO for the same periods (in thousands, except share data):

Quarterly Results for Fiscal 2012	December 31			March 31			June 30			September 30
	(unaudited)			(unaudited)			(unaudited)			(unaudited)
Revenues	$	18,664		$	14,780		$	13,784		$	17,208
Revenues from consolidated VIE - RSO	25,211			28,726			26,262			35,669
Elimination of consolidated VIE revenues attributed to operating segments	(4,501		)	(3,510		)	(4,235		)	(4,988		)
Total Revenues	39,374			39,996			35,811			47,889
Operating income	3,985			13,478			5,810			16,238
(Loss) income from continuing operations	(239		)	11,625			46,215			15,622
Loss from discontinued operations	(20		)	(16		)	(14		)	(8		)
Net (loss) income	(259		)	11,609			46,201			15,614
Less:  Net loss (income) attributable to noncontrolling interests	193			39			(45		)	36
Less:  Net income attributable to noncontrolling interests - RSO	(367		)	(14,030		)	(15,945		)	(17,917		)
Net (loss) income attributable to common shareholders	(433		)	(2,382		)	30,211			(2,267		)
Basic (loss) earnings per common share:
Continuing operations	$	(0.02	)	$	(0.12	)	$	1.52		$	(0.11	)
Discontinued operations	—			—			—			—
Net (loss) income	$	(0.02	)	$	(0.12	)	$	1.52		$	(0.11	)
Diluted (loss) earnings per common share:
Continuing operations	$	(0.02	)	$	(0.12	)	$	1.44		$	(0.11	)
Discontinued operations	—			—			0.00			0.00
Net (loss) income	$	(0.02	)	$	(0.12	)	$	1.44		$	(0.11	)

146

RESOURCE AMERICA, INC.

NOTES TO RESTATED CONSOLIDATED FINANCIAL STATEMENTS − (Continued)

SEPTEMBER 30, 2012

NOTE 26 − VARIABLE INTEREST ENTITIES

In general, a VIE is an entity that does not have sufficient equity to finance its operations without additional subordinated financial support, or an entity for which the risks and rewards of ownership are not directly linked to voting interests. The Company has variable interests in VIEs through its management contracts and investments in various securitization entities, including CDO issuers. Since the Company serves as the asset manager for the investment entities it sponsored and manages, the Company is generally deemed to have the power to direct the activities of the VIE that most significantly impact the entity's economic performance. In the case of an interest in a VIE managed by the Company, the Company will perform an additional qualitative analysis to determine if its interest (including any investment as well as any management fees that qualify as variable interests) could absorb losses or receive benefits that could potentially be significant to the VIE. This analysis considers the most optimistic and pessimistic scenarios of potential economic results that could reasonably be experienced by the VIE. Then, the Company compares the benefits it would receive (in the optimistic scenario) or the losses it would absorb (in the pessimistic scenario) as compared to benefits and losses absorbed by the VIE in total. If the benefits or losses absorbed by the Company were significant as compared to total benefits and losses absorbed by all variable interest holders, then the Company would conclude it is the primary beneficiary.

Consolidated VIE - RSO

The Company determined that it was the primary beneficiary of RSO, as it has the power to direct the activities of RSO that most significantly impact RSO’s economic performance, and the obligation to absorb losses/right to receive benefits from RSO that could potentially be significant to RSO. As part of its analysis the Company evaluated its duties under the terms of the management agreement and the voting rights provided to RSO’s shareholders which include the right to elect the Company’s board of directors and the ability to terminate the management agreement. The Company concluded that the fee paid to the manager in the event of a termination and the Company’s role in managing the operations of RSO resulted in the Company having the power to direct, as defined in ASC Topic 810. Additionally, the Company prepared a quantitative analysis to measure the management/incentive fees and the Company’s equity ownership position in RSO relative to the anticipated economic performance of RSO. The Company determined its benefits could be significant and therefore concluded that the Company is the primary beneficiary and should consolidate RSO. The assets of RSO are held solely to satisfy RSO’s obligations and the creditors of RSO have no recourse against the assets of the Company.

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SEPTEMBER 30, 2012

The following reflects the assets and liabilities and operations of RSO which was consolidated by the Company:

RSO Balance Sheets Detail (in thousands):
	December 31,
	2012			2011
ASSETS (1)
Cash and cash equivalents	$	85,278		$	43,116
Restricted cash	94,112			142,806
Subtotal- Cash and cash equivalents	179,390			185,922
Investment securities, trading	24,843			38,673
Investment securities available-for-sale, pledged as collateral, at fair value	195,200			136,188
Investment securities available-for-sale, at fair value	36,390			4,678
Subtotal- Investments, at fair value	256,433			179,539
Loans, pledged as collateral and net of allowances of $17.7 million and $27.5 million	1,793,780			1,772,063
Loans receivable–related party	8,324			9,497
Loans held for sale	48,894			3,154
Subtotal - Loans, before eliminations	1,850,998			1,784,714
Eliminations	(1,677		)	(8,605		)
Subtotal - Loans	1,849,321			1,776,109
Property available-for-sale	—			2,980
Investment in real estate	75,386			48,027
Investments in unconsolidated entities	45,413			47,899
Subtotal, Investments in real estate and unconsolidated entities, before eliminations	120,799			98,906
Eliminations	(93		)	(38,850		)
Subtotal, Investments in real estate and unconsolidated entities	120,706			60,056
Line items included in "other assets":
Linked transactions, at fair value	6,835			2,275
Interest receivable	7,763			8,836
Deferred tax asset	2,766			626
Principal paydown receivable	25,570			—
Intangible assets	13,192			19,813
Prepaid expenses	10,396			648
Other assets	4,109			3,445
Subtotal - Other assets, before eliminations	70,631			35,643
Eliminations	(31		)	(34		)
Subtotal - Other assets	70,600			35,609
Total assets (excluding eliminations)	$	2,478,251		$	2,284,724
Total assets (including eliminations)	$	2,476,450		$	2,237,235
LIABILITIES (2)
Borrowings	$	1,785,600		$	1,794,083
Distribution payable	21,655			19,979
Accrued interest expense	2,918			3,260
Derivatives, at fair value	14,687			13,210
Accrued tax liability	13,641			12,567
Deferred tax liability	8,376			5,624
Accounts payable and other liabilities	18,029			6,311
Subtotal - Other liabilities, before eliminations	79,306			60,951
Eliminations	(6,633		)	(2,698		)
Subtotal - Other liabilities	72,673			58,253
Total liabilities (before eliminations)	$	1,864,906		$	1,855,034
Total liabilities (after eliminations)	$	1,858,273		$	1,852,336

RSO Balance Sheets Detail (in thousands):
	December 31,
	2012		2011
(1) Assets of consolidated RSO's VIEs included in the total assets above:
Restricted cash	$	90,108	$	138,120
Investments securities available-for-sale, pledged as collateral, at fair value	135,566		89,045
Loans held for sale	14,894		3,154
Property available-for-sale	—		2,980
Loans, pledged as collateral and net of allowances of $15.2 million and $17.2 million	1,678,719		1,730,950
Interest receivable	5,986		6,003
Prepaid expenses	328		212
Principal receivable	25,570		—
Other assets	333		24
Total assets of consolidated VIEs	$	1,951,504	$	1,970,488
(2) Liabilities of consolidated RSO's VIEs included in the total liabilities above:
Borrowings	$	1,614,882	$	1,689,638
Accrued interest expense	2,666		2,943
Derivatives, at fair value	14,078		12,000
Accounts payable and other liabilities	698		442
Total liabilities of consolidated VIEs	$	1,632,324	$	1,705,023

The following table presents detail of noncontrolling interests attributable to RSO:

	December 31,
	2012			2011
Total stockholders equity per RSO balance sheet	$	613,345		$	429,690
Eliminations	(31,895		)	(31,313		)
Noncontrolling interests attributable to RSO	$	581,450		$	398,377

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SEPTEMBER 30, 2012

RSO Income Statement Detail    (in thousands)
	Years Ended December 31,
	2012			2011
REVENUES
Interest income:
Loans	$	109,030		$	86,739
Securities	14,296			12,424
Interest income − other	10,004			10,711
Total interest income	133,330			109,874
Interest expense	42,792			32,186
Net interest income	90,538			77,688
Rental income	11,463			3,656
Dividend income	69			3,045
Equity in (losses) earnings of unconsolidated subsidiaries	(2,709		)	112
Fee income	7,068			7,789
Net realized gain on sales of investment securities available-for-sale and loans	4,106			2,643
Net realized and unrealized gain on investment securities, trading	12,435			837
Unrealized gain and net interest income on linked transactions, net	728			216
Revenues from consolidated VIE - RSO	123,698			95,986
OPERATING EXPENSES
Management fees − related party	18,512			11,022
Equity compensation − related party	4,636			2,526
Professional services	4,700			3,791
Insurance	639			658
Rental operating expense	8,046			2,743
General and administrative	4,434			3,950
Depreciation and amortization	5,885			4,619
Income tax expense	14,602			12,036
Net impairment losses recognized in earnings	180			6,898
Provision for loan losses	16,818			13,896
Total operating expenses	78,452			62,139
Reclassification of income tax expense	(14,602		)	(12,036		)
Expenses of consolidated VIE - RSO	63,850			50,103
Adjusted operating income	59,848			45,883
OTHER REVENUE (EXPENSE)
Gain on consolidation	2,498			—
Gains on the extinguishment of debt	16,699			3,875
Other expenses	—			(6		)
Other income, net, from consolidated VIE - RSO	19,197			3,869
Income from continuing operations	79,045			49,752
Income tax provision - RSO	14,602			12,036
NET INCOME	64,443			37,716
Net income allocated to preferred shares	(1,244		)	—
NET INCOME ALLOCABLE TO RSO COMMON SHAREHOLDERS	$	63,199		$	37,716

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SEPTEMBER 30, 2012

RSO Cash Flow Detail (in thousands)
	Years Ended
	December 31,
	2012			2011
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	64,443		$	37,716
Items included in "Change in cash attributable to consolidated VIE - RSO":
Provision for loan losses	16,818			13,896
Depreciation of investments in real estate and other	1,838			729
Amortization of intangible assets	4,047			3,890
Amortization of term facilities	957			570
Accretion of net discounts on loans held for investment	(17,817		)	(15,588		)
Accretion of net discounts on securities available-for-sale	(3,177		)	(3,698		)
Amortization of discount on notes of CDOs	2,470			274
Amortization of debt issuance costs on notes of CDOs	4,700			3,341
Amortization of stock-based compensation	4,636			2,526
Amortization of terminated derivative instruments	227			227
Accretion of interest-only available-for-sales securities	(719		)	—
Deferred income tax benefits	2,329			(399		)
Purchase of securities, trading	(8,348		)	(38,904		)
Principal payments on securities, trading	1,027			643
Proceeds from sales of securities, trading	33,579			18,131
Net realized and unrealized gain on investment securities, trading	(12,435		)	(837		)
Net realized gains on investments	(4,106		)	(2,643		)
Gain on early extinguishment of debt	(16,699		)	(3,875		)
Net impairment losses recognized in earnings	180			6,898
Gain on consolidation	(2,498		)	—
Linked Transactions fair value adjustments	(168		)	—
Equity in losses (earnings) of unconsolidated subsidiaries	2,709			(112		)
Minority Interest Equity	114			—
Adjust for impact of imputed interest on VIE accounting	1,879			—
Changes in operating assets and liabilities
Decrease in restricted cash	(2,062		)	(5,628		)
Decrease in interest receivable, net of purchased interest	987			(2,513		)
Increase in subscriptions receivable	(1,248		)	—
Increase in principal paydowns receivable	(25,465		)	363
Increase in management fee payable	3,929			974
Increase in security deposits	25			80
Increase in accounts payable and accrued liabilities	7,573			15,370
Decrease in accrued interest expense	(193		)	1,696
Increase in other assets	(20,003		)	(520		)
Subtotal -consolidated VIE - RSO operating activity	(24,914		)	(5,109		)
Change in consolidated VIE - RSO cash for the period	(42,162		)	(13,628		)
Subtotal- Change in cash attributable to consolidated VIE - RSO before eliminations	(67,076		)	(18,737		)
Elimination of intercompany activity	1,850			2,572
Subtotal- Change in cash attributable to consolidated VIE - RSO	(65,226		)	(16,165		)
Non-cash incentive compensation to RAI	1,468			430
Elimination of intercompany activity	(1,468		)	(430		)
Non-cash incentive compensation to RAI, after eliminations	—			—
Net cash provided by operating activities (excluding eliminations)	40,997			33,037

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SEPTEMBER 30, 2012

RSO Consolidated Statements of Cash Flows (in thousands)
	Years Ended
	December 31,
	2012			2011
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of loans	(649,983		)	(970,309		)
Purchase of securities available-for-sale	(119,779		)	(117,044		)
Subtotal - Purchase of loans and securities by consolidated VIE - RSO, before eliminations	(769,762		)	(1,087,353		)
Eliminations	—			15,221
Subtotal - Purchase of loans and securities by consolidated VIE - RSO	(769,762		)	(1,072,132		)
Principal payments received on loans	570,276			424,600
Proceeds from sale of loans	173,378			212,042
Principal payments on securities available-for-sale	47,284			11,810
Proceeds from sale of securities available-for-sale	28,652			13,747
Proceeds from sale of real estate held-for-sale	2,886			1,464
Subtotal - principal payments and proceeds from sales received by consolidated VIE - RSO, before eliminations	822,476			663,663
Decrease (increase) in restricted cash	50,756			31,014
Items included in "Other -VIE, investing activity":
Investment in unconsolidated entity	474			(4,762		)
Equity contribution to VIE	(710		)	—
Improvement of  real estate held-for-sale	(138		)	—
Purchase of investments in real estate	—			(19,299		)
Distributions from investments in real estate	1,152			—
Improvements in investments in real estate	(3,878		)	—
Purchase of intangible asset	—			(21,213		)
Investment in loans - related parties	—			(10,000		)
Principal payments received on loans – related parties	1,251			10,430
Investments in real estate assets	—			(689		)
Subtotal - Other consolidated VIE - investing activity, before eliminations	(1,849		)	(45,533		)
Eliminations	(76		)	—
Subtotal - Other consolidated VIE - investing activity	(1,925		)	(45,533		)
Net cash provided by (used in) investing activities (excluding eliminations)	101,621			(438,209		)
	Years Ended
	December 31,
	2012			2011
CASH FLOWS FROM FINANCING ACTIVITIES:
Items included in "Net borrowings (repayments) of debt by consolidated VIE - RSO"
Proceeds from borrowings:
Repurchase agreements	71,121			55,852
Collateralized debt obligations	—			323,244
Mortgage payable	—			13,600
Payments on borrowings:
Collateralized debt obligations	(257,905		)	(28,542		)
Repurchase of issued bonds	—			(6,125		)
Retirement of debt	(20,365		)	—
Subtotal - net (repayments) borrowings of debt by consolidated VIE - RSO	(207,149		)	358,029
Distributions paid on common stock	(74,050		)	(69,869		)
Elimination of dividends paid to RAI	2,174			2,455
Distributionx paid on common stock, after elimination	(71,876		)	(67,414		)
Net proceeds from issuances of common stock (net of offering costs of $2,165 and $1,263)	55,502			46,347
Net proceeds from dividend reinvestment and stock purchase plan (net of offering costs of $19 and $11)	73,044			83,564
Proceeds from issuance of 8.5% Series A redeemable preferred shares (net of offering costs of $781 and $0)	16,411			—
Proceeds from issuance of 8.25% Series B redeemable preferred shares (net of offering costs of $1,201 and $0)	26,099			—
Subtotal - net proceeds from issuance of stock by consolidated VIE	171,056			129,911
Payment of debt issuance costs	(586		)	(6,385		)
Payment of equity to third party sub-note holders	(3,480		)	—
Distributions paid on preferred stock	(613		)	—
Proceeds from CDO retained notes	14,366			7,114
Subtotal - Other consolidated VIE -RSO financing activity	9,687			729
Net cash (used in) provided by financing activities (excluding eliminations)	$	(100,456	)	$	418,800
NET (DECREASE) INCREASE IN CASH    AND CASH EQUIVALENTS	42,162			13,628
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD	43,116			29,488
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	85,278		$	43,116
SUPPLEMENTAL DISCLOSURE:
Interest expense paid in cash	$	41,369		$	32,596

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SEPTEMBER 30, 2012

A. Summary of Significant Accounting Policies - RSO

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Estimates affecting the accompanying consolidated financial statements include the net realizable and fair values of RSO's investments and derivatives, the estimated life used to calculate depreciation, amortization, and accretion of premiums and discounts, respectively, on investments and provisions for loan losses.

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 December 31, 2012 and 2011, this included $19.9 million and $4.8 million, respectively, held in a prime brokerage account, $20.6 million and $26.0 million, respectively, held in a money market account, $43.3 million and $12.0 million, respectively, held in checking accounts, and $1.5 million and $299,000, respectively, held in accounts at RSO's investment properties.

Investment Securities

RSO classifies its investment portfolio as trading or available-for-sale.  RSO, from time to time, may sell any of its investments due to changes in market conditions or in accordance with its investment strategy.RSO’s investment securities, trading are reported at fair value.  To determine fair value, RSO uses dealer quotes or bids which are validated using a third-party valuation firm utilizing appropriate prepayment, default, and recovery rates.  Any changes in fair value are recorded in RSO’s results of operations as net realized and unrealized gain (loss) on investment securities, trading.

RSO’s investment securities available-for-sale are reported at fair value.  To determine fair value, RSO uses a dealer quote, which typically will be the dealer who sold RSO the security.  RSO has been advised that, in formulating their quotes, dealers may use recent trades in the particular security, if any, market activity in similar securities, if any, or internal valuation models.  These quotes are non-binding.  Based on how dealers develop their quotes, market liquidity and levels of trading, RSO categorizes these investments as either Level 2 or Level 3 in the fair value hierarchy.  RSO evaluates the reasonableness of the quotes it receives by applying its own valuation models.  If there is a material difference between a quote RSO receives and the value indicated by its valuation models, RSO will evaluate the difference.  As part of that evaluation, RSO will discuss the difference with the dealer, who may revise its quote based upon these discussions.  Alternatively, RSO may revise its valuation models.

On a quarterly basis, RSO evaluates its available-for-sale investments for other-than-temporary impairment.  An available-for-sale investment is impaired when its fair value has declined below its amortized cost basis.  An impairment is considered other-than-temporary when the amortized cost basis of the investment or some portion thereof will not be recovered.  In addition, RSO’s intent to sell as well as the likelihood that RSO will be required to sell the security before the recovery of the amortized cost basis is considered.  Where credit quality is believed to be the cause of the other-than-temporary impairment, that component of the impairment is recognized as an impairment loss in the statement of operations.  Where other market components are believed to be the cause of the impairment, that component of the impairment is recognized as other comprehensive loss.

Investment security transactions are recorded on the trade date.  Realized gains and losses on investment securities are determined on the specific identification method.

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Investment Interest Income Recognition

Interest income on RSO’s mortgage-backed and other asset-backed securities is accrued using the effective yield method based on the actual coupon rate and the outstanding principal amount of the underlying mortgages or other assets.  Premiums and discounts are amortized or accreted into interest income over the lives of the securities also using the effective yield method, adjusted for the effects of estimated prepayments.  For an investment purchased at par, the effective yield is the contractual interest rate on the investment.  If the investment is purchased at a discount or at a premium, the effective yield is computed based on the contractual interest rate increased for the accretion of a purchase discount or decreased for the amortization of a purchase premium.  The effective yield method requires RSO to make estimates of future prepayment rates for its investments that can be contractually prepaid before their contractual maturity date so that the purchase discount can be accreted, or the purchase premium can be amortized, over the estimated remaining life of the investment.  The prepayment estimates that RSO uses directly impact the estimated remaining lives of its investments.  Actual prepayment estimates are reviewed as of each quarter end or more frequently if RSO becomes aware of any material information that would lead it to believe that an adjustment is necessary.  If prepayment estimates are incorrect, the amortization or accretion of premiums and discounts may have to be adjusted, which would have an impact on future income.

Loans

RSO acquires loans through direct origination, through the acquisition of participations in commercial real estate loans and corporate leveraged loans in the secondary market and through syndications of newly originated loans. Loans are held for investment; therefore, RSO initially records them at their acquisition price, and subsequently, accounts for them based on their outstanding principal plus or minus unamortized premiums or discounts. RSO may sell a loan held for investment where the credit fundamentals underlying a particular loan have changed in such a manner that RSO's expected return on investment may decrease. Once the determination has been made by RSO that it no longer will hold the loan for investment, RSO identifies these loans as “Loans held for sale” and will account for them at the lower of amortized cost or fair value.

Loan Interest Income Recognition

Interest income on loans includes interest at stated rates adjusted for amortization or accretion of premiums and discounts. Premiums and discounts are amortized or accreted into income using the effective yield method. If a loan with a premium or discount is prepaid, RSO immediately recognizes the unamortized portion as a decrease or increase to interest income. In addition, RSO defers loan origination fees and loan origination costs and recognizes them over the life of the related loan against interest income using the effective yield method.

Allowance for Loan Loss

RSO maintains an allowance for loan loss.  Loans held for investment are first individually evaluated for impairment so specific reserves can be applied.  Loans for which a specific reserve is not applicable are then evaluated for impairment as a homogeneous pool of loans with substantially similar characteristics so that a general reserve can be established, if needed.  The reviews are performed at least quarterly.

RSO considers a loan to be impaired if one of two conditions exists.  The first condition is if, based on current information and events, management believes it is probable that RSO will be unable to collect all amounts due according to the contractual terms of the loan agreement.  The second condition is if the loan is deemed to be a troubled-debt restructuring (“TDR”) where a concession has been given to a borrower in financial difficulty.  These TDRs may not have an associated specific loan loss allowance if the principal and interest amount is considered recoverable based on current market conditions, expected collateral performance and / or guarantees made by the borrowers.

When a loan is impaired under either of these two conditions, the allowance for loan losses is increased by the amount of the excess of the amortized cost basis of the loan over its fair value.  Fair value may be determined based on the present value of estimated cash flows; on market price, if available; or on the fair value of the collateral less estimated disposition costs.  When a loan, or a portion thereof, is considered uncollectible and pursuit of collection is not warranted, RSO will record a charge-off or write-down of the loan against the allowance for loan losses.

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SEPTEMBER 30, 2012

An impaired loan may remain on accrual status during the period in which RSO is pursuing repayment of the loan; however, the loan would be placed on non-accrual status at such time as (i) RSO's management believes that scheduled debt service payments will not be met within the coming 12 months; (ii) the loan becomes 90 days delinquent; (iii) RSO's management determines the borrower is incapable of, or has ceased efforts toward, curing the cause of the impairment; or (iv) the net realizable value of the loan’s underlying collateral approximates RSO’s carrying value for such loan.  While on non-accrual status, RSO recognizes interest income only when an actual payment is received.

Investments in Real Estate

Investments in real estate are carried net of accumulated depreciation.  Costs directly related to the acquisition are expensed as incurred.  Ordinary repairs and maintenance which are not reimbursed by the tenants are expensed as incurred.  Costs related to the improvement of the real property are capitalized and depreciated over their useful life.

Acquisitions of real estate assets and any related intangible assets are recorded initially at fair value under FASB ASC Topic 805, “Business Combinations.”  RSO allocates the purchase price of its investments in real estate to land, building, site improvements, the value of in-place leases and the value of above or below market leases. The value allocated to above or below market leases is amortized over the remaining lease term as an adjustment to rental income. RSO amortizes the value allocated to in-place leases over the weighted average remaining lease term to depreciation and amortization expense.  RSO depreciates real property using the straight-line method over the estimated useful lives of the assets as follows:

Category	Term
Building	25 - 40 years
Site improvements	Lesser of the remaining life of building or useful life

Long-Lived and Intangible Assets

Long-lived assets and certain identifiable intangibles to be held and used are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of such assets may not be recoverable.  The review of recoverability is based on an estimate of the future undiscounted cash flows (excluding interest charges) expected to result from the long-lived asset’s use and eventual disposition.  If impairment has occurred, the loss will be measured as the excess of the carrying amount of the asset over the fair value of the asset.

Other than an impairment charge of $1.7 million RSO took on conversion of a loan investment into equity of a real estate property during the years ended 2011, no impairment charges were recorded on RSO’s investment in real estate or intangible assets during the year ended December 31, 2012.

Comprehensive Income/(Loss)

Comprehensive income/(loss) for RSO includes net income and the change in net unrealized gains/(losses) on available-for-sale securities and derivative instruments used to hedge exposure to interest rate fluctuations and protect against declines in the market value of assets resulting from general market trends.

Income Taxes

RSO operates in such a manner as to qualify as a real estate investment trust (“REIT”) under the provisions of the Internal Revenue Code of 1986, as amended (the "Code"); therefore, applicable REIT taxable income is included in the taxable income of its shareholders, to the extent distributed by RSO.  To maintain REIT status for federal income tax purposes, RSO is generally required to distribute at least 90% of its REIT taxable income to its shareholders as well as comply with certain other qualification requirements as defined under the Code.  As a REIT, RSO is not subject to federal corporate income tax to the extent that it distributes 100% of its REIT taxable income each year. 

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SEPTEMBER 30, 2012

Taxable income, from non-REIT activities managed through RSO's taxable REIT subsidiaries, is subject to federal, state and local income taxes.  RSO's taxable REIT subsidiaries' income taxes are accounted for under the asset and liability method.  Under the asset and liability method, deferred income taxes are recognized for the temporary differences between the financial reporting basis and tax basis of assets and liabilities. 

Apidos CDO I, Apidos CDO III, Apidos Cinco CDO, Apidos CDO VIII, and Whitney CLO I, RSO's foreign TRSs, are organized as exempted companies incorporated with limited liability under the laws of the Cayman Islands, and are generally exempt from federal and state income at the corporate level because their activities in the United States are limited to trading in stock and securities for their own account.  Therefore, despite their status as taxable REIT subsidiaries, they generally will not be subject to corporate tax on their earnings and no provision for income taxes is required; however, because they are “controlled foreign corporations,” RSO will generally be required to include Apidos CDO I's, Apidos CDO III's, Apidos Cinco CDO's, Apidos CDO VIII's, and Whitney CLO I's current taxable income in its calculation of REIT taxable income.

On October 27, 2011 RSO reorganized the ownership structure of Apidos CDO I and Apidos CDO III. As a result, the earnings from Apidos CDO I and Apidos CDO III are excluded from RSO's calculation of REIT taxable income and are subject to corporate tax. On January 24, 2012, RSO reorganized the ownership structure of Apidos CDO I and Apidos CDO III.  As a result, for the period January 1, 2012 through January 23, 2012, the earnings from Apidos CDO I and Apidos CDO III are excluded from RSO's calculation of REIT taxable income and are subject to corporate tax. For the period January 24, 2012 and ending December 31, 2012 the earnings from Apidos CDO I are included in RSO's calculation of REIT taxable income.

On December 11, 2012, RSO reorganized the ownership structure of Apidos CDO III.  As a result, for the period from January 24, 2012 through December 10, 2012 the earnings from Apidos CDO III are included in RSO's calculation of REIT taxable income.  Also as a result of the reorganization on December 11, 2012, for the period December 11, 2012 and ending December 31, 2012, the earnings from Apidos CDO III are excluded from RSO's calculation of REIT taxable income and are subject to corporate tax. 

On November 12, 2012, RSO reorganized the ownership structure of Apidos Cinco CDO and Whitney CLO I.  As a result, for the period November 12, 2012 and ending December 31, 2012, the earnings from Apidos Cinco CDO and Whitney CLO I are excluded from RSO's calculation of REIT taxable income and are subject to corporate tax. Accordingly, a provision for income taxes on the earnings from November 12, 2012 through December 31, 2012 has been recorded.

Linked Transactions

If RSO finances the purchase of securities with repurchase agreements with the same counterparty from whom the securities are purchased and both transactions are entered into contemporaneously or in contemplation of each other, the transactions are presumed not to meet sale accounting criteria and RSO will account for the purchase of such securities and the repurchase agreement on a net basis and record a forward purchase commitment to purchase securities (each, a “Linked Transaction”) at fair value on RSO's consolidated balance sheet in the line item Linked Transactions, at fair value. Changes in the fair value of the assets and liabilities underlying the Linked Transactions and associated interest income and expense are reported as unrealized gain and net interest income on linked transactions, net on RSO's consolidated statement of operations.

B.    Variable Interest Entities - RSO

RSO has evaluated its securities, loans, investments in unconsolidated entities, liabilities to subsidiary trusts issuing preferred securities (consisting of unsecured junior subordinated notes) and its CDOs in order to determine if they qualify as VIEs. RSO monitors these investments and, to the extent it has determined that it owns a material investment in the current controlling class of securities of a particular entity, analyzes the entity for potential consolidation. RSO will continually analyze investments and liabilities, including when there is a reconsideration event, to determine whether such investments or liabilities are VIEs and whether such VIE should be consolidated. These analysis require 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 would have otherwise been consolidated.

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Consolidated VIEs (RSO is the primary beneficiary)

Based on management’s analysis, RSO is the primary beneficiary of seven VIEs: Apidos CDO I, Apidos CDO III, Apidos Cinco CDO, Apidos CLO VIII, RREF CDO 2006-1, RREF CDO 2007-1 and Whitney CLO I. In performing the primary beneficiary analysis for six of these VIEs (other than Whitney CLO I, which is discussed below), it was determined that the persons that have the power to direct the activities that are most significant to each of these VIEs and RSO who has 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 RSO was the party within that group that is more closely associated to each such VIE because of its preferred equity (and in some cases debt) interest in them.

These CDO and CLO entities were formed on behalf of RSO to invest in real estate-related securities, CMBS, property available-for-sale, bank loans and asset-backed securities and were financed by the issuance of debt securities. The manager manages these entities on behalf of RSO. By financing these assets with long-term borrowings through the issuance of CDO and CLO bonds, RSO 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.

Whitney CLO I, the seventh entity, is one in which RSO acquired the rights to manage the assets held by the entity as collateral for its CLOs in February 2011. For a discussion on the primary beneficiary analysis for Whitney, see “- Unconsolidated VIEs (RSO is not the primary beneficiary, but has a variable interest) - Resource Capital Asset Management,” below. For a discussion of RSO’s CDOs and CLOs, see “Borrowings” below.

For CLOs in which RSO does not own 100% of the subordinated notes, RSO 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 statement of income.

RSO has exposure to CDO and CLO losses to the extent of its subordinated debt and preferred equity interests in them. RSO 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 CDO or CLO, distributions with respect to its preferred equity interests. As a result of consolidation, debt and equity interests RSO holds in these CDOs and CLOs have been eliminated, and RSO’s consolidated balance sheet reflects both the assets held and debt issued by the CDOs and CLOs to third parties and any accrued expense to third parties. RSO's operating results and cash flows include the gross amounts related to CDO and CLO assets and liabilities as opposed to RSO's net economic interests in the CDO and CLO entities.

The creditors of RSO’s seven consolidated VIEs have no recourse to the general credit of RSO. However, in its capacity as manager, RSO has voluntarily supported two credits in one of its commercial real estate CDOs as the credits went through a restructuring in order to maximize their future cash flows. For the years ended December 31, 2012 and 2011, RSO has provided financial support of $156,000 and $710,000, respectively. RSO 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 RSO. There are no explicit arrangements or implicit variable interests that obligate RSO to provide financial support to any of its consolidated VIEs, although RSO may choose to do so in the future.

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The following table shows the classification and carrying value of assets and liabilities of consolidated VIEs as of December 31, 2012 (in thousands):

	Apidos I			Apidos III		Apidos Cinco		Apidos VIII		Whitney CLO I		RREF 2006		RREF 2007		Total
ASSETS
Restricted cash (1)	$	30,799		$	12,956	$	22,669	$	11,027	$	11,800	$	20	$	837	$	90,108
Investment securities   available-for-sale, pledged as   collateral, at fair value	8,333			6,902		11,316		501		33,700		10,796		64,018		135,566
Loans, pledged as collateral	177,385			209,561		306,196		329,467		146,106		226,716		283,288		1,678,719
Loans held for sale	2,671			2,770		3,657		5,796		—		—		—		14,894
Interest receivable	(12		)	720		1,050		737		404		1,153		1,934		5,986
Prepaid assets	50			25		30		69		18		78		58		328
Principal receivable	—			—		—		—		—		6,320		19,250		25,570
Other assets	—			—		—		—		—		63		270		333
Total assets (2)	$	219,226		$	232,934	$	344,918	$	347,597	$	192,028	$	245,146	$	369,655	$	1,951,504
LIABILITIES
Borrowings	$	202,968		$	221,304	$	320,550	$	320,998	$	177,415	$	145,664	$	225,983	$	1,614,882
Accrued interest expense	380			94		343		1,427		266		50		106		2,666
Derivatives, at fair value	—			—		—		—		—		1,939		12,139		14,078
Accounts payable and   other liabilities	142			16		30		395		92		22		1		698
Total liabilities	$	203,490		$	221,414	$	320,923	$	322,820	$	177,773	$	147,675	$	238,229	$	1,632,324

(1) Includes $27.5 million available for reinvestment in certain of the CDOs.

(2) Assets of each of the consolidated VIEs may only be used to settle the obligations of each respective VIE.

Unconsolidated VIEs (RSO is not the primary beneficiary, but has a variable interest)

Based on management’s analysis, RSO 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 RSO’s financial statements as of December 31, 2012. RSO’s maximum exposure to risk for each of these unconsolidated VIEs is set forth in the “Maximum Risk Exposure,” column in the table below.

LEAF Commercial Capital, Inc.

In the November 16, 2011 formation of LEAF, in exchange for its prior interests in its lease related investments, RSO received 31,341 shares of Series A Preferred Stock, 4,872 shares of newly issued 8% Series B Redeemable Preferred Stock and 2,364 shares of newly issued Series D Redeemable Preferred Stock, collectively representing, on a fully-diluted basis assuming conversion, a 26.7% interest in LEAF. Several approaches were used, including discounted expected cash flows, market approach and comparable sales transactions to estimate the fair value of its investment in LEAF as a result of the transaction. These approaches required assumptions and estimates of many critical factors, including revenue and market growth, operating cash flows, market multiples, and discount rates, which were based on the current economic environment and credit market conditions. RSO’s investment in LEAF was valued at $33.1 million based on a third-party valuation.

RSO determined that it is not the primary beneficiary of LEAF because it does not participate in any management or portfolio decisions, holds only two of six board positions, and only controls 26.7% of the voting rights in the entity. Furthermore, a third-party investor holds consent rights with respect to significant LEAF actions, including incurrence of indebtedness, consummation of a sale of the entity, liquidation or initiating a public offering.

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In connection with this transaction, RSO and the Company have undertaken a contingent obligation with respect to the value of the equity on the balance sheet of LEAF Receivables Funding 3, a wholly-owned subsidiary of LEAF which owns equipment, equipment leases and notes. LEAF Receivables Funding 3 was included in the assets contributed to LEAF by RSO. As part of the SPA, RSO and the Company agreed that, to the extent the value of the equity on the balance sheet of LEAF Receivables Funding 3 is less than approximately $18.7 million (the value of the equity of LEAF Receivables Funding 3 on the date it was contributed to LEAF by RSO), as of the final testing date, which must be within 90 days following December 31, 2013, they will be jointly and severally obligated to contribute cash to LEAF to make up the deficit. RSO does not believe it is probable that it will be required to fund LEAF in accordance with the SPA based on projected operating results because LEAF Receivables Funding 3 is currently profitable and is expected to be profitable through the year ended December 31, 2013.

Unsecured Junior Subordinated Debentures

RSO 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 RSO, as described below. RSO 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 RSO’s consolidated financial statements.

RSO 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 RSO 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. RSO will continuously reassess whether it should be deemed to be the primary beneficiary of the trusts.

Resource Capital Asset Management CDOs

In February 2011, RSO purchased a company that manages $1.9 billion of bank loan assets through five CLOs. As a result, RSO is 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 $13.1 million and $19.0 million at December 31, 2012 and 2011, respectively. RSO recognized fee income of $7.0 million and $7.8 million for the years ended December 31, 2012 and 2011, respectively. With respect to four of these CLOs, RSO determined that it does not hold a controlling interest and, therefore, is not the primary beneficiary. With respect to the fifth CLO, Whitney CLO I, in October 2012, RSO purchased 66.6% of its preferred equity, which was determined to be a reconsideration event. Based upon that purchase, RSO determined that it does have 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 has the power to direct the activities that are most significant to the VIE. As a result, together RSO has both the power to direct and the right to receive benefits and the obligation to absorb losses. It was then determined that, as between RSO and the related party, RSO was the party within that group that is more closely associated with Whitney CLO I because of its preferred equity interest in Whitney CLO I. RSO, therefore, consolidated Whitney CLO I as discussed above in “- Consolidated VIEs (RSO is the primary beneficiary)”.

Real Estate Joint Ventures

On December 1, 2009, RSO purchased a membership interest in RRE VIP Borrower, LLC (a VIE that holds interests in a real estate joint venture) from the Company. This joint venture, which is structured as a credit facility with Värde Investment Partners, LP acting as lender, finances the acquisition of distressed properties and mortgage loans and has the objective of repositioning both the directly-owned properties and the properties underlying the mortgage loans to enhance their value. RSO acquired the membership interests for $2.1 million. The joint venture agreement requires RSO to contribute 3% to 5% (depending on the terms of the agreement pursuant to which the particular asset is being acquired) of the total funding required for each asset acquisition as needed up to a specified amount. RSO provided funding of $591,000 and $1.9 million for these investments for the years ended December 31, 2012 and 2011, respectively. Resource Real Estate Management, LLC (“RREM”), an indirect subsidiary of the Company, acts as asset manager of the venture and receives a monthly asset management fee. RSO’s investment in RRE VIP Borrower, LLC at December 31, 2012 and 2011 was $2.3 million and $3.6 million, respectively. Using the equity method of accounting, RSO recognized equity in earnings related to this investment of $683,000 and $112,000 for the years ended December 31, 2012 and 2011, respectively.

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On June 19, 2012, RSO entered into a second joint venture with Värde Investment Partners, LP acting as lender, to purchase two condominium developments. RSO purchased a 7.5% equity interest in the venture. RSO may be subject to a capital call based on its pro rata share of equity interest in the venture up to the earlier of the end of the investment period, ending in May 2015, or the date the aggregate of all capital contributions exceeds $500 million. RREM was appointed as the asset manager of the venture to perform lease review and approval, debt service collection, loan workout, foreclosure, disposition and permitting, as applicable. RREM is also responsible for engaging third parties to perform day-to-day property management, property leasing, rent collection, maintenance, and capital improvements. RSO’s investment in Värde Investment Partners, LP at December 31, 2012 was $526,000. Using the equity method of accounting, RSO recognized equity in losses related to this investment of $135,000 for the year ended December 31, 2012.

RSO has determined that it does not have the power to direct the activities that most significantly impact the economic performance of each of these ventures, which include asset underwriting and acquisition, lease review and approval, and loan asset servicing, and, therefore, RSO is not the primary beneficiary of either.

The following table shows the classification, carrying value and maximum exposure to loss with respect to RSO’s unconsolidated VIEs as of December 31, 2012 (in thousands):

	Unconsolidated Variable Interest Entities
	LEAF Commercial Capital, Inc.		Unsecured Junior Subordinated Debentures			Resource Capital Asset Management CDOs		RRE VIP Borrower, LLC		Värde Investment Partners, LP		Total			Maximum Exposure to Loss (1)
Investment in unconsolidated entities	$	33,071	$	1,548		$	—	$	2,264	$	526	$	37,409		37,409
Intangible assets	—		—			13,105		—		—		13,105			13,105
Total assets	33,071		1,548			13,105		2,264		526		50,514
Borrowings	—		50,814			—		—		—		50,814			N/A
Total liabilities	—		50,814			—		—		—		50,814			N/A
Net asset (liability)	$	33,071	$	(49,266	)	13,105		2,264		526		$	(300	)	N/A

(1) RSO's maximum exposure to loss at December 31, 2012 does not exceed the carrying amount of its investment, subject to the LEAF Receivables Funding 3's contingent obligation as described above.

Other than the contingent liability arrangement described above in connection with LEAF and the commitments to fund its real estate joint ventures, there were no explicit arrangements or implicit variable interests that could require RSO to provide financial support to any of its unconsolidated VIEs.

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C. Supplemental cash flow information - RSO

Supplemental disclosure of cash flow information (in thousands):

	Year Ended
	December 31,
	2012			2011
Non-cash investing activities include the following:
Acquisition of real estate investments	$	(21,661	)	$	(33,073	)
Conversion of loans to investment in real estate	$	21,661		$	34,550
Net purchase of loans on warehouse line	$	—		$	(52,735	)
Acquisition of loans, pledged as collateral	$	(230,152	)	$	—
Non-cash financing activities include the following:
Distributions on common stock declared but not paid	$	21,024		$	19,979
Distribution on preferred stock declared but not paid	$	1,244		$	—
Issuance of restricted stock	$	2,189		$	1,203
Subscription receivable	$	1,248		$	—
Assumption of collateralized debt obligations	$	206,408		$	—
Acquisition of loans on warehouse line	$	—		$	52,735

D. Investment securities - Trading - RSO

The following table summarizes RSO's structured notes and residential mortgage-backed securities (“RMBS”) which are classified as investment securities, trading and carried at fair value (in thousands):

	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
December 31, 2012
Structured notes	$	9,413	$	10,894	$	(1,028	)	$	19,279
RMBS	6,047		858		(1,341		)	5,564
Total	$	15,460	$	11,752	$	(2,369	)	$	24,843
December 31, 2011
Structured notes	$	27,345	$	6,098	$	(1,890	)	$	31,553
RMBS	8,729		100		(1,709		)	7,120
Total	$	36,074	$	6,198	$	(3,599	)	$	38,673

RSO purchased two securities and sold fifteen securities during the year ended December 31, 2012, for a net gain of $5.5 million.  RSO also had one position liquidate during the year ended December 31, 2012 which resulted in a gain of $224,000.  RSO held thirteen investment securities, trading as of December 31, 2012. RSO purchased 27 securities and sold 11 securities during the year ended December 31, 2011, for a realized gain of $8.0 million. RSO held 27 investments securities, trading as of December 31, 2011.

E. Investment securities available-for-sale - RSO

RSO pledges a portion of its CMBS as collateral against its borrowings under repurchase agreements and derivatives. CMBS that are accounted for as components of Linked Transactions are not reflected in the tables set forth in this note, as they are accounted for as derivatives.

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The following table summarizes RSO'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
December 31, 2012:
CMBS	$	182,828	$	4,626	$	(16,639	)	$	170,815
ABS	26,479		1,700		(1,127		)	27,052
Corporate Bonds	33,767		111		(178		)	33,700
Other asset-backed	—		23		—			23
Total	$	243,074	$	6,460	$	(17,944	)	$	231,590
December 31, 2011:
CMBS	$	144,334	$	1,129	$	(29,821	)	$	115,642
ABS	28,513		215		(3,527		)	25,201
Other asset-backed	—		23		—			23
Total	$	172,847	$	1,367	$	(33,348	)	$	140,866

(1) As of December 31, 2012 and 2011, $195.2 million and $136.2 million, respectively, of securities were pledged as collateral security under related financings.

The following table summarizes the estimated maturities of RSO’s CMBS, 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
December 31, 2012:
Less than one year	$	42,618	(1)	$	46,522	4.09	%
Greater than one year and less than five years	122,509			131,076		4.55	%
Greater than five years and less than ten years	61,780			60,801		3.31	%
Greater than ten years	4,683			4,675		4.03	%
Total	$	231,590		$	243,074	4.12	%
December 31, 2011:
Less than one year	$	44,583	(2)	$	48,934	4.45	%
Greater than one year and less than five years	68,751			91,199		4.62	%
Greater than five years and less than ten years	25,596			29,527		3.52	%
Greater than ten years	1,936			3,187		3.84	%
Total	$	140,866		$	172,847	4.36	%

(1) RSO expects that the maturity date of these CMBS will either be extended or the CMBS will be paid in full.

(2) CMBS of $6.7 million maturing in this category are collateralized by floating-rate loans and, as permitted under the CMBS terms, are expected to extend their maturities, because, beyond their contractual extensions which expired or will expire this year, the servicer may allow further extensions of the underlying floating rate loans.  RSO expects that the remaining $37.9 million of CMBS will either have their maturity date extended or be paid in full. ABS of $950,000 maturing in this category were subsequently extended until March 2018.

The contractual maturities of the CMBS investment securities available-for-sale range from November 2013 to April 2027.  The contractual maturities of the ABS investment securities available-for-sale range from October 2015 to September 2022. The contractual maturities of the corporate bond investment securities available-for-sale range from May 2014 to February 2022 .

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The following table shows the fair value and gross unrealized losses, aggregated by investment category and length of time, of those individual investment securities available-for-sale that 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
December 31, 2012:
CMBS	$	25,803	$	(442	)	$	38,734	$	(16,197	)	$	64,537	$	(16,639	)
ABS	501		(12		)	5,961		(1,115		)	6,462		(1,127		)
Corporate Bonds	18,944		(178		)	—		—			18,944		(178		)
Total temporarily impaired securities	$	45,248	$	(632	)	$	44,695	$	(17,312	)	$	89,943	$	(17,944	)
December 31, 2011:
CMBS	$	88,726	$	(17,033	)	$	8,281	$	(12,788	)	$	97,007	$	(29,821	)
ABS	13,583		(935		)	4,473		(2,592		)	18,056		(3,527		)
Total temporarily impaired securities	$	102,309	$	(17,968	)	$	12,754	$	(15,380	)	$	115,063	$	(33,348	)

RSO held 19 and eight CMBS investment securities available-for-sale that have been in a loss position for more than 12 months as of December 31, 2012 and 2011, respectively.  RSO held nine and seven ABS investment securities available-for-sale that have been in a loss position for more than 12 months as of December 31, 2012 and 2011, respectively.  RSO had no corporate bond investment securities available-for-sale that have been in a loss position for more than 12 months as of December 31, 2012 and 2011. The unrealized losses in the above table are considered to be temporary impairments due to market factors and are not reflective of credit deterioration.

The determination of other-than-temporary impairment is a subjective process, and different judgments and assumptions could affect the timing of loss realization.  RSO reviews its portfolios and makes other-than-temporary impairment determinations at least quarterly.  RSO considers the following factors when determining if there is an other-than-temporary impairment on a security:    

• the length of time the market value has been less than amortized cost;

• the severity of the impairment;

• the expected loss of the security as generated by a third-party valuation model;

• original and current credit ratings from the rating agencies;

• underlying credit fundamentals of the collateral backing the securities;

• whether, based upon RSO’s intent, it is more likely than not that RSO will sell the security before the recovery of the amortized cost basis; and

• third-party support for default, for recovery, prepayment speed and reinvestment price assumptions.

At December 31, 2012 and 2011, RSO held $170.8 million and $115.6 million, respectively, (net of net unrealized losses of $12.0 million and $28.7 million, respectively), of CMBS recorded at fair value.  To determine fair value, RSO uses dealer quotes which are either provided by RSO's trade or financing counterparties.  As of December 31, 2012 and 2011, $170.8 million and $106.7 million, respectively, of investment securities available-for-sale were valued using dealer quotes and $0 and $8.9 million, respectively, were valued using an internal valuation model.

At December 31, 2012 and 2011, RSO held $27.1 million and $25.2 million, respectively, (net of net unrealized losses of $574,000 and $3.3 million), of ABS recorded at fair value.  To determine their fair value, RSO uses dealer quotes.

At December 31, 2012 , RSO held $33.7 million (net of net unrealized losses of $67,000), of corporate bonds recorded at fair value. RSO held no corporate bonds as of December 31, 2011.  To determine their fair value, RSO uses dealer quotes.

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 RSO’s securities classified as available-for-sale have increased in fair value on a net basis as of December 31, 2012 as compared to December 31, 2011, primarily due to improving dealer marks and new purchases in 2012. RSO performs an on-going review of third-party reports and updated financial data on the underlying properties in order to analyze current and projected security performance.  Rating agency downgrades are considered with respect to RSO’s income approach when determining other-than-than temporary impairment and, when inputs are subjected to testing for economic changes within possible ranges, the resulting projected cash flows reflect a full recovery of principal and interest indicating no impairment.

RSO did not recognize any other-than-temporary impairment during the year ended December 31, 2012. During the year ended December 31, 2011, RSO recognized a $4.6 million other-than-temporary impairment on one fixed rate position that supported RSO's CMBS investments bringing the fair value to $48,000.

During the year ended December 31, 2012, RSO sold seven CMBS positions with a total par of $31.0 million, and recognized a net gain of $1.4 million. During the year ended December 31, 2011, RSO sold three CMBS positions with a total par of $15.0 million and recognized a gain of $3.5 million.

During the year ended December 31, 2012, RSO sold five ABS positions with a total par of $4.3 million, and recognized a gain of $147,000. During the year ended December 31, 2011, RSO sold six ABS positions with a total par of $8.1 million and recognized a loss of $2.4 million.

During the year ended December 31, 2012, RSO sold one corporate bond position with a total par of $2.25 million, and recognized a gain of $27,000. During the year ended December 31, 2012, RSO had two corporate bond positions redeemed with a total par of $2.1 million, and recognized a gain of $13,000. RSO held no corporate bonds as of December 31, 2011.

Changes in interest rates may also have an effect on the rate of mortgage principal prepayments and, as a result, prepayments on CMBS in RSO’s investment portfolio.  At December 31, 2012 and 2011, the aggregate discount due to interest rate changes exceeded the aggregate premium on RSO’s CMBS by approximately $8.0 million and $13.4 million, respectively.  At December 31, 2012 and 2011, the aggregate discount on RSO’s ABS portfolio was $3.1 million and $3.8 million respectively.  There were no premiums on RSO’s ABS investment portfolio at December 31, 2012 and 2011. At December 31, 2012, the aggregate premium on RSO’s corporate bond portfolio was $604,000.

F.    Investments real estate - RSO

	As of December 31, 2012				As of December 31, 2011
	Book Value			Number of Properties	Book Value			Number of Properties
Multi-family property	$	42,179		2	$	38,577		2
Office property	10,149			1	10,149			1
Hotel property	25,608			1	—			—
Subtotal	77,936				48,726
Less:  Accumulated depreciation	(2,550		)		(699		)
Investments in real estate	$	75,386			$	48,027

No impairment charges were recorded on RSO's investment in real estate during the years ended December 31, 2012 and 2011.

Acquisitions

During the year ended December 31, 2012, RSO foreclosed on one self-originated loan and converted it to an investment in real estate. During the year ended December 31, 2011, RSO converted two loans it had originated to investments in real estate and acquired one real estate asset, summarized as follows:

• On September 6, 2012, RSO foreclosed on a self-originated loan and converted the loan to equity with a fair value of $25.5 million at acquisition. The loan was collateralized by a 179 unit hotel property in Coconut Grove, Florida. The property had a hotel occupancy rate of 75% at acquisition.

• On August 1, 2011, RSO, through its subsidiary RCC Real Estate, purchased Whispertree Apartments, a 504 multi-family property located in Houston, Texas, for $18.1 million, the fair value.  The property was 95% occupied at acquisition.  In conjunction with the purchase of this property, RSO entered into a mortgage in the amount of $13.6 million.

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• On June 24, 2011, RSO converted a self-originated loan to equity with a fair value of $10.7 million at acquisition.  The loan was collateralized by an office building in Pacific Palisades, California.  The property was 60% occupied at acquisition.

• On June 14, 2011, RSO converted a self-originated loan to equity with a fair value of $22.4 million at acquisition.  The loan was collateralized by a 400 unit multi-family property in Memphis, Tennessee.  The property was 93.8% occupied at acquisition.

The following table is a summary of the aggregate estimated fair value of the assets and liabilities acquired on the respective date of acquisition (in thousands):

	December 31,
Description	2012			2011
Assets acquired:
Investments in real estate	$	25,500		$	48,683
Cash and cash equivalents	—			177
Restricted cash	—			2,360
Intangible assets	—			2,490
Other assets	(89		)	391
Total assets acquired	25,411			54,101
Liabilities assumed:
Accounts payable and other liabilities	3,750			673
Total liabilities assumed	3,750			673
Estimated fair value of net assets acquired	$	21,661		$	53,428

RSO has not yet completed the process of estimating the fair value of assets acquired and liabilities assumed on the new investment in real estate acquired during the year ended December 31, 2012. Accordingly, RSO's preliminary estimates and the allocation of the purchase price to the assets acquired and liabilities assumed may change as RSO completes the process. In accordance with FASB ASC Topic 805, changes, if any, to the preliminary estimates and allocation will be reported in the consolidated financial statements retrospectively.

During the third quarter of 2011, RSO accounted for the acquisition of The Heights (formerly Whispertree Apartments) as a business combination in accordance with FASB ASC Topic 805.  In the fourth quarter of 2011, RSO obtained the final appraisal of the property.  Based on the final appraisal, RSO adjusted the value of the land and the value of the building by $3.9 million, respectively, as of the acquisition date.  Accordingly, these adjustments were recognized and are reflected in the consolidated financial statements as of December 31, 2012 and 2011.

The following unaudited pro forma information, after including the acquisition of real properties, is presented below as if the acquisitions occurred on January 1, 2011. The pro forma results are not necessarily indicative of the results which actually would have occurred if the acquisition had occurred on the first day of the periods presented, nor is it indicative of RSO's future results (in thousands):

	Years Ended December 31,
Description	2012		2011
Total revenue, as reported	$	123,698	$	95,986
Pro forma revenue	$	131,028	$	111,263
Net income, reported	$	63,199	$	37,716
Pro forma net income	$	63,503	$	37,535
Earnings per share - basic, reported	$	0.71	$	0.54
Earnings per share per - diluted, reported	$	0.71	$	0.53
Pro forma earnings per share - basic	$	0.72	$	0.53
Pro forma earnings per share - diluted	$	0.71	$	0.53

These amounts have been calculated after adjusting the results of the acquired properties to reflect the additional depreciation and amortization that would have been charged assuming the fair value adjustments to RSO's investments in real estate had been applied from January 1, 2011.

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G. Loans held for investments - RSO

The following is a summary of RSO’s loans (in thousands):

Loan Description	Principal			Unamortized (Discount) Premium (1)			Carrying Value (2)
December 31, 2012
Bank loans (3)	$	1,218,563		$	(25,249	)	$	1,193,314
Commercial real estate loans:
Whole loans (4)	569,829			(1,891		)	567,938
B notes	16,441			(114		)	16,327
Mezzanine loans	82,992			(206		)	82,786
Total commercial real estate loans	669,262			(2,211		)	667,051
Subtotal loans before allowances	1,887,825			(27,460		)	1,860,365
Allowance for loan loss	(17,691		)	—			(17,691		)
Total	$	1,870,134		$	(27,460	)	$	1,842,674
December 31, 2011:
Bank loans (3)	$	1,205,826		$	(32,073	)	$	1,173,753
Commercial real estate loans:
Whole loans	545,828			(1,155		)	544,673
B notes	16,579			(144		)	16,435
Mezzanine loans	67,842			32			67,874
Total commercial real estate loans	630,249			(1,267		)	628,982
Subtotal loans before allowances	1,836,075			(33,340		)	1,802,735
Allowance for loan loss	(27,518		)	—			(27,518		)
Total	$	1,808,557		$	(33,340	)	$	1,775,217

(1) Amounts include deferred amendment fees of $450,000 and $286,000 and deferred upfront fees of $334,000 and $0 being amortized over the life of the bank loans as of December 31, 2012 and 2011, respectively.  Amounts include loan origination fees of $1.9 million and $984,000 and loan extension fees of $214,000 and $123,000 being amortized over the life of the commercial real estate loans as of December 31, 2012 and 2011, respectively.

(2) Substantially all loans are pledged as collateral under various borrowings at December 31, 2012 and 2011, respectively.

(3) Amounts include $14.9 million and $3.2 million of bank loans held for sale at December 31, 2012 and 2011, respectively.

(4) Amount includes $34.0 million from two whole loans which are classified as loans held for sale at December 31, 2012.

At December 31, 2012 and 2011, approximately 47.7% and 41.9%, respectively, of RSO’s commercial real estate loan portfolio was concentrated in commercial real estate loans located in California; approximately 7.9% and 8.9%, respectively, in Arizona; approximately 11.1% and 6%, respectively, in Texas, and approximately 3.3% and 8%, respectively, in Florida.  At December 31, 2012 and 2011, approximately 13.2% and 13.9%, of RSO’s bank loan portfolio was concentrated in the collective industry grouping of healthcare, education and childcare.

At December 31, 2012, RSO’s bank loan portfolio consisted of $1.2 billion (net of allowance of $9.7 million) of floating rate loans, which bear interest ranging between the 3-month LIBOR plus 1.5% and three month LIBOR plus 8.8% with maturity dates ranging from August, 2013 to January, 2021.  At December 31, 2011, RSO’s bank loan portfolio consisted of $1.2 billion (net of allowance of $3.3 million) of floating rate loans, which bear interest ranging between three month LIBOR plus 1.1%, and three month LIBOR plus 10.6% with maturity dates ranging from March, 2012 to September, 2019.

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The following is a summary of the weighted average life of RSO’s bank loans, at amortized cost (in thousands):

	December 31,
	2012		2011
Less than one year	$	10,028	$	1,968
Greater than one year and less than five years	821,568		684,376
Five years or greater	361,718		487,409
	$	1,193,314	$	1,173,753

The following is a summary of RSO’s commercial real estate loans held for investment (in thousands):

Description	Quantity	Amortized Cost		Contracted Interest Rates	Maturity Dates(3)
December 31, 2012
Whole loans, floating rate (1) (4) (5) (6)	37	$	567,938	LIBOR plus 2.50% to LIBOR plus 5.50%	June 2013 to February 2019
B notes, fixed rate	1	16,327		8.68%	April 2016
Mezzanine loans, floating rate	2	15,845		LIBOR plus 2.50% to LIBOR plus 7.45%	August 2013 to December 2013
Mezzanine loans, fixed rate (7)	3	66,941		0.50% to 20.00%	September 2014 to September 2019
Total (2)	43	$	667,051
December 31, 2011:
Whole loans, floating rate (1) (4) (5)	32	$	537,708	LIBOR plus 2.50% to LIBOR plus 5.75%	April 2012 to February 2019
Whole loans, fixed rate	1	6,965		10.00%	June 2012
B notes, fixed rate	1	16,435		8.68%	April 2016
Mezzanine loans, floating rate	3	53,908		LIBOR plus 2.50% to LIBOR plus 7.45%	May 2012 to December 2012
Mezzanine loans, fixed rate (7)	2	13,966		8.99% to 11.00%	January 2016 to September 2016
Total (2)	39	$	628,982

(1) Whole loans had $8.9 million and $5.2 million in unfunded loan commitments as of December 31, 2012 and 2011, respectively.  These commitments are funded as the borrowers require additional funding and have satisfied the requirements to obtain this additional funding.

(2) The total does not include an allowance for loan loss of $8.0 million and $24.2 million as of December 31, 2012 and 2011, respectively.

(3) Maturity dates do not include possible extension options that may be available to the borrowers.

(4) Floating rate whole loans include a $2.0 million portion of a whole loan that has a fixed rate of 15% as of December 31, 2012 and 2011, respectively.

(5) Floating rate whole loans include a $1.0 million and $302,000 preferred equity tranche of a whole loan that has a fixed rate of 10% as of December 31, 2012 and 2011, respectively.

(6) Amount includes $34.0 million from two whole loans that are classified as loans held for sale at December 31, 2012.

(7) Fixed rate mezzanine loans include a mezzanine loan that was modified into two tranches which both currently pay interest at 0.5%. In addition, the subordinate tranche accrues interest at LIBOR plus 18.5% which is deferred until maturity.

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The following is a summary of the weighted average life of RSO’s commercial real estate loans, at amortized cost (in thousands):

Description	2013		2014		2015 and Thereafter		Total
December 31, 2012
B notes	$	—	$	—	$	16,327	$	16,327
Mezzanine loans	5,328		20,694		56,764		82,786
Whole loans	71,799		—		496,139		567,938
Total (1)	$	77,127	$	20,694	$	569,230	$	667,051

(1) Weighted average life of commercial real estate loans assumes full exercise of extension options available to borrowers.

The following is a summary of the allocation of the allowance for loan loss with respect to RSO’s commercial real estate and bank loans (in thousands, except percentages) by asset class:

Description	Allowance for Loan Loss		Percentage of Total Allowance
December 31, 2012:
B notes	$	206	1.17%
Mezzanine loans	860		4.85%
Whole loans	6,920		39.12%
Bank loans	9,705		54.86%
Total	$	17,691
December 31, 2011:
B notes	$	253	0.92%
Mezzanine loans	1,437		5.23%
Whole loans	22,531		81.87%
Bank loans	3,297		11.98%
Total	$	27,518

As of December 31, 2012, RSO had recorded an allowance for loan losses of $17.7 million consisting of a $9.7 million allowance on RSO’s bank loan portfolio and a $8.0 million allowance on RSO’s commercial real estate portfolio as a result of the provisions taken on five bank loans and one commercial real estate loan as well as the maintenance of a general reserve with respect to these portfolios.  The whole loan allowance decreased $15.6 million from $22.5 million as of December 31, 2011 to $6.9 million as of December 31, 2012.  This decrease is primarily the result of a charge to the allowance resulting from a CRE loan that was restructured with a new borrower and with a new use for the underlying property.

As of December 31, 2011, RSO had recorded an allowance for loan losses of $27.5 million consisting of a $3.3 million allowance on RSO’s bank loan portfolio and a $24.2 million allowance on RSO’s commercial real estate portfolio as a result of the impairment of one bank loan and four commercial real estate loans as well as the maintenance of a general reserve with respect to these portfolios.

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H. Investments in unconsolidated entities - RSO

In the November 16, 2011 formation of LEAF, RSO received 31,341 shares of 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 LEAF in exchange for its prior interest in LEAF.  RSO’s investment in LEAF was valued at $36.3 million based on a third-party valuation.  Several approaches were used, including discounted expected cash flows, market approach and comparable sales transactions to estimate the fair value of its investment in LEAF as a result of the transaction.  These approaches required assumptions and estimates of many critical factors, including revenue and market growth, operating cash flows, market multiples, and discount rates, which were based on the current economic environment and credit market conditions. RSO recorded a loss of $2.2 million in conjunction with the transaction.  RSO’s resulting interest is accounted for under the equity method.  RSO recorded losses of $3.3 million for the year ended December 31, 2012, which was recorded in equity in earnings of unconsolidated subsidiaries on the consolidated statement of income.  No such loss was recorded at December 31, 2011. RSO’s investment in LEAF was valued at $33.1 million as of December 31, 2012.

RSO has a 100% interest valued at $1.5 million in the common shares (3% of the total equity) in two trusts, Resource Capital Trust I (“RCT I”) and RCC Trust II (“RCT II”).  RSO completed a qualitative analysis to determine whether or not it is the primary beneficiary of each of the trusts.  RSO does not have the power to direct the activities of either trust, nor does it have the obligation to absorb losses or the right to receive benefits that could potentially be significant to these trusts.  Therefore, RSO is not deemed to be the primary beneficiary of either trust and they are not consolidated into RSO’s consolidated financial statements.  RSO records its investments in RCT I and RCT II’s common shares of $774,000 each as investments in unconsolidated trusts using the cost method and records dividend income upon declaration by RCT I and RCT II.  For the years ended December 31, 2012 and 2011, RSO recognized $2.5 million and $3.0 million, respectively, of interest expense with respect to the subordinated debentures it issued to RCT I and RCT II which included $183,000 and $277,000, respectively, of amortization of deferred debt issuance costs.  RSO will continuously reassess whether it should be deemed to be the primary beneficiary of the trusts.  

On December 1, 2009, RSO purchased a membership interest in RRE VIP Borrower, LLC (an unconsolidated VIE that holds RSO's interests in a real estate joint venture) from the Company at book value.  This joint venture, which is structured as a credit facility with Värde Investment Partners, LP acting as lender, finances the acquisition of distressed properties and mortgage loans and has the objective of repositioning both the directly-owned properties and the properties underlying the mortgage loans to enhance their value.  RSO acquired the membership interests for $2.1 million. The agreement requires RSO to contribute 3% to 5% (depending on the asset agreement) of the total funding required for each asset acquisition on a monthly basis.  RREM acts as asset manager of the venture and receives a monthly asset management fee equal to 1% of the combined investment calculated as of the last calendar day of the month. For the years ended December 31, 2012 and 2011, RSO paid RREM management fees of $45,000 and $34,000, respectively. For the years ended December 31, 2012 and 2011, RSO recorded income of $683,000 and $112,000, respectively, which was recorded in equity in earnings of unconsolidated subsidiaries on the consolidated statement of income. The investment balance of $2.3 million and $3.6 million at December 31, 2012 and 2011, respectively, is recorded as an investment in unconsolidated entities on RSO's consolidated balance sheet using the equity method.

On June 19, 2012, RSO entered into a joint venture with Värde Investment Partners, LP acting as lender, to purchase two condominium developments.  RSO purchased a 7.5% equity interest in the venture. RREM was appointed as the asset manager of the venture to perform lease review and approval, debt service collection, loan workout, foreclosure, disposition and permitting, as applicable.  RREM is also responsible for engaging third parties to perform day-to-day property management, property leasing, rent collection, maintenance, and capital improvements.  RREM receives an annual asset management fee equal to 1.0% of outstanding contributions. RSO incurred fees payable to RREM of $39,000 during the year ended December 31, 2012. For the year ended December 31, 2012, RSO recorded losses of $(135,000), which were recorded in equity in earnings of unconsolidated subsidiaries on the consolidated statement of income. The investment balance of $526,000 at December 31, 2012 is recorded as an investment in unconsolidated entities on RSO's consolidated balance sheet using the equity method. RSO will continuously reassess whether it should be deemed to be the primary beneficiary of the trusts.  

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I. Financing receivables - RSO

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			Lease Receivables			Loans Receivable-Related Party		Total
December 31, 2012:
Allowance for losses at January 1, 2012	$	24,221		$	3,297		$	—		$	—	$	27,518
Provision for loan loss	5,225			11,593			—			—		16,818
Loans charged-off	(21,460		)	(5,185		)	—			—		(26,645		)
Allowance for losses at December 31, 2012	$	7,986		$	9,705		$	—		$	—	$	17,691
Ending balance:
Individually evaluated for impairment	$	2,142		$	3,236		$	—		$	—	$	5,378
Collectively evaluated for impairment	$	5,844		$	6,469		$	—		$	—	$	12,313
Loans acquired with deteriorated credit quality	$	—		$	—		$	—		$	—	$	—
Loans:
Ending balance:
Individually evaluated for impairment	$	177,055		$	4,688		$	—		$	8,324	$	190,067
Collectively evaluated for impairment	$	489,996		$	1,187,875		$	—		$	—	$	1,677,871
Loans acquired with deteriorated credit quality	$	—		$	751		$	—		$	—	$	751
December 31, 2011:
Allowance for losses at January 1, 2011	$	31,617		$	2,616		$	70		$	—	$	34,303
Provision for loan loss	6,478			7,418			—			—		13,896
Loans charged-off	(13,874		)	(6,737		)	(70		)	—		(20,681		)
Allowance for losses at December 31, 2011	$	24,221		$	3,297		$	—		$	—	$	27,518
Ending balance:
Individually evaluated for impairment	$	17,065		$	1,593		$	—		$	—	$	18,658
Collectively evaluated for impairment	$	7,156		$	1,704		$	—		$	—	$	8,860
Loans acquired with deteriorated credit quality	$	—		$	—		$	—		$	—	$	—
Loans:
Ending balance:
Individually evaluated for impairment	$	113,038		$	2,693		$	—		$	9,497	$	125,228
Collectively evaluated for impairment	$	515,944		$	1,171,060		$	—		$	—	$	1,687,004
Loans acquired with deteriorated credit quality	$	—		$	—		$	—		$	—	$	—

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Credit quality indicators

Bank Loans

RSO 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 RSO’s highest rating and 5 representing its lowest rating.  RSO 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.  RSO 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 December 31, 2012:
Bank loans	$	1,095,148	$	33,677	$	27,837	$	16,318	$	5,440	$	14,894	$	1,193,314
As of December 31, 2011:
Bank loans	$	1,076,298	$	19,739	$	60,329	$	11,540	$	2,693	$	3,154	$	1,173,753

All of RSO’s bank loans are performing with the exception of five loans with an amortized cost of $5.4 million as of December 31, 2012, one of which defaulted as of December 31, 2012, three of which defaulted as of March 31, 2012, which includes a loan acquired with deteriorated credit quality as a result of the acquisition of Whitney CLO I, and one of which defaulted on December 31, 2011. As of December 31, 2011, all of RSO's bank loans are performing with the exception of one loan which defaulted on December 31, 2011 with a carrying amount of $2.7 million.

Commercial Real Estate Loans

RSO 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 RSO’s highest rating and 4 representing its lowest rating.  RSO 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, RSO 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.

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 December 31, 2012:
Whole loans	$	427,456	$	—	$	106,482	$	—	$	34,000	$	567,938
B notes	16,327		—		—		—		—		16,327
Mezzanine loans	38,296		—		44,490		—		—		82,786
	$	482,079	$	—	$	150,972	$	—	$	34,000	$	667,051
As of December 31, 2011:
Whole loans	$	329,085	$	87,598	$	90,225	$	37,765	$	—	$	544,673
B notes	16,435		—		—		—		—		16,435
Mezzanine loans	23,347		—		44,527		—		—		67,874
	$	368,867	$	87,598	$	134,752	$	37,765	$	—	$	628,982

All of RSO’s commercial real estate loans were performing as of December 31, 2012 and 2011.

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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		Total Loans Receivable		Total Loans > 90 Days and Accruing
December 31, 2012:
Whole loans	$	—	$	—	$	—	$	—	$	567,938	$	567,938	$	—
B notes	—		—		—		—		16,327		16,327		—
Mezzanine loans	—		—		—		—		82,786		82,786		—
Bank loans	1,549		—		3,891		5,440		1,187,874		1,193,314		—
Loans receivable- related party	—		—		—		—		8,324		8,324		—
Total loans	$	1,549	$	—	$	3,891	$	5,440	$	1,863,249	$	1,868,689	$	—
December 31, 2011:
Whole loans	$	—	$	—	$	—	$	—	$	544,673	$	544,673	$	—
B notes	—		—		—		—		16,435		16,435		—
Mezzanine loans	—		—		—		—		67,874		67,874		—
Bank loans	—		—		—		—		1,173,753		1,173,753		—
Loans receivable- related party	—		—		—		—		9,497		9,497		—
Total loans	$	—	$	—	$	—	$	—	$	1,812,232	$	1,812,232	$	—

Impaired Loans

The following tables show impaired loans indicated (in thousands):

	Recorded Balance		Unpaid Principal Balance		Specific Allowance			Average Investment in Impaired Loans		Interest Income Recognized
December 31, 2012:
Loans without a specific valuation allowance:
Whole loans	$	115,841	$	115,841	$	—		$	114,682	$	3,436
B notes	$	—	$	—	$	—		$	—	$	—
Mezzanine loans	$	38,072	$	38,072	$	—		$	38,072	$	367
Bank loans	$	—	$	—	$	—		$	—	$	—
Loans receivable - related party	$	6,754	$	6,754	$	—		$	—	$	851
Loans with a specific valuation allowance:
Whole loans	$	23,142	$	23,142	$	(2,142	)	$	22,576	$	801
B notes	$	—	$	—	$	—		$	—	$	—
Mezzanine loans	$	—	$	—	$	—		$	—	$	—
Bank loans	$	5,440	$	5,440	$	(3,236	)	$	—	$	—
Loans receivable - related party	$	—	$	—	$	—		$	—	$	—
Total:
Whole loans	$	138,983	$	138,983	$	(2,142	)	$	137,258	$	4,237
B notes	—		—		—			—		—
Mezzanine loans	38,072		38,072		—			38,072		367
Bank loans	5,440		5,440		(3,236		)	—		—
Loans receivable - related party	6,754		6,754		—			—		851
	$	189,249	$	189,249	$	(5,378	)	$	175,330	$	5,455

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	Recorded Balance		Unpaid Principal Balance		Specific Allowance			Average Investment in Impaired Loans		Interest Income Recognized
December 31, 2011:
Loans without a specific valuation allowance:
Whole loans	$	75,273	$	75,273	$	—		$	75,263	$	2,682
B notes	$	—	$	—	$	—		$	—	$	—
Mezzanine loans	$	—	$	—	$	—		$	—	$	—
Bank loans	$	—	$	—	$	—		$	—	$	—
Loans receivable - related party	$	7,820	$	7,820	$	—		$	—	$	1,112
Loans with a specific valuation allowance:
Whole loans	$	37,765	$	37,765	$	(17,065	)	$	36,608	$	920
B notes	$	—	$	—	$	—		$	—	$	—
Mezzanine loans	$	—	$	—	$	—		$	—	$	—
Bank loans	$	2,693	$	2,693	$	(1,593	)	$	2,693	$	—
Loans receivable - related party	$	—	$	—	$	—		$	—	$	—
Total:
Whole loans	$	113,038	$	113,038	$	(17,065	)	$	111,871	$	3,602
B notes	—		—		—			—		—
Mezzanine loans	—		—		—			—		—
Bank loans	2,693		2,693		(1,593		)	2,693		—
Loans receivable - related party	7,820		7,820		—			—		1,112
	$	123,551	$	123,551	$	(18,658	)	$	114,564	$	4,714

Troubled- Debt Restructurings

The following tables show troubled-debt restructurings in RSO's loan portfolio (in thousands):

	Number of Loans	Pre-Modification Outstanding Recorded Balance		Post-Modification Outstanding Recorded Balance
Year Ended December 31, 2012:
Whole loans (1)	7	$	175,708	$	158,422
B notes	—	—		—
Mezzanine loans	1	38,072		38,072
Bank loans	—	—		—
Loans receivable - related party (2)	1	7,797		7,797
Total loans	9	$	221,577	$	204,291
Year Ended December 31, 2011:
Whole loans	2	$	34,739	$	33,073
B notes	—	—		—
Mezzanine loans	—	—		—
Bank loans	—	—		—
Loans receivable	—	—		—
Loans receivable - related party	1	7,981		7,981
Total loans	3	$	42,720	$	41,054

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(1) Whole loans include a whole loan with a pre-modification and post-modification outstanding recorded balance of $21.8 million that have been converted to real-estate owned and will no longer be a TDR after December 31, 2012.

(2) Loans receivable - related party reflects a loan outstanding to LEAF Fund II, which is a commercial finance partnership that was sponsored and is managed/serviced by the Company. RSO has received paydowns on this loan for the year ended December 31, 2012 and currently has an outstanding balance of $6.8 million as of December 31, 2012.

As of December 31, 2012 and December 31, 2011, there were no troubled-debt restructurings that subsequently defaulted.

J. Intangible assets - RSO

Intangible assets represent identifiable intangible assets acquired as a result of RSO’s acquisition of RCAM in February 2011, its conversion of loans to investments in real estate in June 2011, and the acquisition of real estate in August 2011.  RSO amortizes identified intangible assets to expense over their estimated lives or period of benefit using the straight-line method.  RSO evaluates intangible assets for impairment as events and circumstances change.  In October 2012, RSO purchased 66.6% of preferred equity of one of the RCAM CDOs. As a result of this transaction and consolidation of Whitney CLO I, RSO wrote-off the unamortized balance of $2.6 million, the intangible asset associated with this CDO, which was recorded in gain/(loss) on consolidation in the consolidated statement of income. Due to a 2013 event whereby a second CLO liquidated, RSO accelerated the amortization of the remaining balance of its intangible asset and recorded a $657,000 charge to depreciation and amortization on the consolidated statement of income. RSO expects to record amortization expense on intangible assets of approximately $1.9 million for the year ended December 31, 2013, and $1.8 million for the years ended December 31, 2014, 2015, 2016 and 2017.  The weighted average amortization period was 8.7 years and 8.0 years at December 31, 2012 and 2011, respectively and the accumulated amortization was $10.5 million and $3.9 million at December 31, 2012 and 2011, respectively.

The following table summarizes intangible assets at December 31, 2012 and 2011 (in thousands).

	Beginning Balance		Accumulated Amortization			Net Asset
December, 2012
Investment in RCAM	$	21,213	$	(8,108	)	$	13,105
Investments in real estate:
In-place leases	2,461		(2,379		)	82
Above (below) market leases	29		(24		)	5
	2,490		(2,403		)	87
Total intangible assets	$	23,703	$	(10,511	)	$	13,192
December 31, 2011:
Investment in RCAM	$	21,213	$	(2,237	)	$	18,976
Investments in real estate:
In-place leases	2,461		(1,634		)	827
Above (below) market leases	29		(19		)	10
	2,490		(1,653		)	837
Total intangible assets	$	23,703	$	(3,890	)	$	19,813

For the years ended December 31, 2012 and 2011, RSO recognized $7.2 million and $7.8 million, respectively, of fee income related to the investment in RCAM.

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K. Borrowings - RSO

RSO historically has financed the acquisition of its investments, including investment securities, loans and lease receivables, through the use of secured and unsecured borrowings in the form of CDOs, securitized notes, repurchase agreements, secured term facilities, warehouse facilities and trust preferred securities issuances.  Certain information with respect to RSO’s borrowings at December 31, 2012 and 2011 is summarized in the following table (in thousands, except percentages):

	Outstanding Borrowings		Weighted Average Borrowing Rate	Weighted Average Remaining Maturity	Value of Collateral
December 31, 2012:
RREF CDO 2006-1 Senior Notes (1)	$	145,664	1.42%	33.6 years	$	295,759
RREF CDO 2007-1 Senior Notes (2)	225,983		0.81%	33.8 years	292,980
Apidos CDO I Senior Notes (3)	202,969		1.07%	4.6 years	217,745
Apidos CDO III Senior Notes (4)	221,304		0.80%	7.5 years	232,655
Apidos Cinco CDO Senior Notes (5)	320,550		0.82%	7.4 years	344,105
Apidos CLO VIII Senior Notes (6)	300,951		2.16%	8.8 years	351,014
Apidos CLO VIII Securitized Borrowings (11)	20,047		15.27%	8.8 years	—
Whitney CLO I (10)	171,555		1.82%	4.2 years	191,704
Whitney Securitized Borrowings(11)	5,860		9.50%	4.2 years	—
Unsecured Junior Subordinated Debentures (7)	50,814		4.26%	23.7 years	—
Repurchase Agreements (8)	106,303		2.28%	18 days	145,234
Mortgage Payable (9)	13,600		4.17%	5.6 years	18,100
Total(12)	$	1,785,600	1.62%	12.5 years	$	2,089,296
December 31, 2011:
RREF CDO 2006-1 Senior Notes (1)	$	157,803	1.44%	34.6 years	$	264,796
RREF CDO 2007-1 Senior Notes (2)	315,882		0.85%	34.8 years	422,641
Apidos CDO I Senior Notes (3)	314,884		1.04%	5.6 years	315,088
Apidos CDO III Senior Notes (4)	261,209		0.99%	8.5 years	260,167
Apidos Cinco CDO Senior Notes (5)	319,959		0.95%	8.4 years	326,164
Apidos CLO VIII Senior Notes (6)	298,312		2.42%	9.8 years	334,122
Apidos CLO VIII Securitized Borrowings (11)	21,364		15.27%	9.8 years	—
Unsecured Junior Subordinated Debentures (7)	50,631		4.35%	24.7 years	—
Repurchase Agreements (8)	40,503		1.54%	18 days	47,143
Mortgage Payable (9)	13,536		4.23%	6.6 years	18,100
Total	$	1,794,083	1.38%	15.2 years	$	1,988,221

(1) Amount represents principal outstanding of $146.4 million and $159.1 million less unamortized issuance costs of $728,000 and $1.2 million as of December 31, 2012 and 2011, respectively.  This CDO transaction closed in August 2006.

(2) Amount represents principal outstanding of $227.4 million and $318.6 million less unamortized issuance costs of $1.4 million and $2.7 million as of December 31, 2012 and 2011, respectively.  This CDO transaction closed in June 2007.

(3) Amount represents principal outstanding of $203.2 million and $315.9 million less unamortized issuance costs of $274,000 and $1.1 million as of December 31, 2012 and 2011, respectively.  This CDO transaction closed in August 2005.

(4) Amount represents principal outstanding of $222.0 million and $262.5 million less unamortized issuance costs of $659,000 and $1.3 million as of December 31, 2012 and 2011, respectively.  This CDO transaction closed in May 2006.

(5) Amount represents principal outstanding of $322.0 million and $322.0 million less unamortized issuance costs of $1.5 million and $2.0 million as of December 31, 2012 and 2011, respectively.  This CDO transaction closed in May 2007.

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(6) Amount represents principal outstanding of $317.6 million and $317.6 million, less unamortized issuance costs of $4.7 million and $5.5 million, and less unamortized discounts of $11.9 million and $13.8 million as of December 31, 2012 and 2011, respectively.  This CDO transaction closed in October 2011.

(7) Amount represents junior subordinated debentures issued to RCT I and RCT II in May 2006 and September 2006, respectively.

(8) Amount represents principal outstanding of $47.5 million and $40.9 million less unamortized deferred debt costs of $23,000 and $494,000 and accrued interest costs of $37,000 and $39,000 related to CMBS repurchase facilities as of December 31, 2012 and 2011, respectively, and principal outstanding of $59.1 million less unamortized deferred debt costs of $348,000 and accrued interest costs of $79,000 related to CRE repurchase facilities as of December 31, 2012. Does not reflect CMBS repurchase agreement borrowings that are components of Linked Transactions. At December 31, 2012 and 2011, RSO had repurchase agreements of $20.4 million and $14.9 million, respectively, that were linked to CMBS purchases and accounted for as Linked Transactions, and as such, the linked repurchase agreements are not included in the above table.

(9) Amount represents principal outstanding of $13.6 million and $13.6 million less unamortized real estate financing costs of $0 and $65,000 as of December 31, 2012 and 2011, respectively.  This real estate transaction closed in August 2011.

(10) Amount represents principal outstanding of $174.1 million less unamortized discounts of $2.5 million as of December 31, 2012 . In October 2012 RSO purchased a $20.9 million equity interest in Whitney CLO I which represents 67% of the outstanding preference shares. The transaction gave RSO a controlling interest in the CLO.

(11) The securitized borrowings are collateralized by the same assets as the Apidos CLO VIII Senior Notes and the Whitney CLO I Senior Notes, respectively.

Collateralized Debt Obligations

Resource Real Estate Funding CDO 2007-1

In June 2007, RSO closed RREF CDO 2007-1, a $500.0 million CDO transaction that provided financing for commercial real estate loans and commercial mortgage-backed securities.  The investments held by RREF CDO 2007-1 collateralize the debt it issued and, as a result, the investments are not available to RSO, its creditors or stockholders.  RREF CDO 2007-1 issued a total of $265.6 million of senior notes at par to unrelated investors.  RCC Real Estate purchased 100% of the class H senior notes (rated  BBB+:Fitch), class K senior notes (rated BBB-:Fitch), class L senior notes (rated BB:Fitch) and class M senior notes (rated B: Fitch) for $68.0 million.  In addition, Resource Real Estate Funding 2007-1 CDO Investor, LLC, a subsidiary of RCC Real Estate, purchased a $41.3 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 RREF CDO 2007-1 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 RREF CDO 2007-1. The reinvestment period for RREF 2007-1 ended in June 2012 which results in the sequential pay down of notes as underlying collateral matures and pays down.  As of December 31, 2012, $14.5 million of Class A-1 notes have been paid down.

The senior notes issued to investors by RREF CDO 2007-1 consist of the following classes: (i) $180.0 million of class A-1 notes bearing interest at one-month LIBOR plus 0.28%; (ii) $50.0 million of unissued class A-1R notes, which allow the CDO to fund future funding obligations under the existing whole loan participations that have future funding commitments; the undrawn balance of the class A-1R notes accrued a commitment fee at a rate per annum equal to 0.18%, the drawn balance bore interest at one-month LIBOR plus 0.32%; (iii) $57.5 million of class A-2 notes bearing interest at one-month LIBOR plus 0.46%; (iv) $22.5 million of class B notes bearing interest at one-month LIBOR plus 0.80%; (v) $7.0 million of class C notes bearing interest at a fixed rate of 6.423%; (vi) $26.8 million of class D notes bearing interest at one-month LIBOR plus 0.95%; (vii) $11.9 million of class E notes bearing interest at one-month LIBOR plus 1.15%; (viii) $11.9 million of class F notes bearing interest at one-month LIBOR plus 1.30%; (ix) $11.3 million of class G notes bearing interest at one-month LIBOR plus 1.55%; (x) $11.3 million of class H notes bearing interest at one-month LIBOR plus 2.30%; (xi) $11.3 million of class J notes bearing interest at one-month LIBOR plus 2.95%; (xii) $10.0 million of class K notes bearing interest at one-month LIBOR plus 3.25%; (xiii) $18.8 million of class L notes bearing interest at a fixed rate of 7.50% and (xiv) $28.8 million of class M notes bearing interest at a fixed rate of 8.50%.  All of the notes issued mature in September 2046, although RSO has the right to call the notes anytime after July 2017 until maturity.  The weighted average interest rate on all notes issued to outside investors and net of repurchased notes was 0.81% and 0.85% at December 31, 2012 and 2011, respectively.

During the year ended December 31, 2012 RSO repurchased and redeemed $50.0 million of the Class A-1R notes and $26.8 million of the Class D notes in RREF CDO 2007-1 at a weighted average price of 78.85% to par which, after fees paid to an investment bank to finance the transaction and related expenses, resulting in a $14.9 million gain reported as a gain on the extinguishment of debt in the consolidated statements of income. During the year ended 2011, RSO repurchased $10.0 million of Class A-2 notes at a weighted average price of 61.25% to par which resulted in a $3.9 million gain.

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In connection with RSO’s ownership of certain notes held by RREF CDO 2007-1, on June 21, 2011 RSO surrendered for cancellation, without consideration, to the trustee of RREF CDO 2007-1the following outstanding notes, which previously eliminated in consolidation:  $7.5 million of the Class B notes, $6.5 million of the Class F notes, $6.3 million of the Class G notes and $10.6 million of the Class H notes.  The surrendered notes were canceled by the trustee pursuant to the applicable indenture, and the obligations due under those notes were deemed extinguished.  The effect of these cancellations was to improve the CDO’s performance with respect to its over-collateralization and interest coverage tests, with which it was already in compliance before the cancellation, and to secure RSO’s long-term interest in this structured vehicle.

As a result of RSO’s ownership of senior notes, both the notes repurchased subsequent to closing and those retained at the CDO’s closing eliminate in consolidation.

Resource Real Estate Funding CDO 2006-1

In August 2006, RSO closed RREF CDO 2006-1, a $345.0 million CDO transaction that provided financing for commercial real estate loans.  The investments held by RREF CDO 2006-1 collateralize the debt it issued and, as a result, the investments are not available to RSO, its creditors or stockholders.  RREF CDO 2006-1 issued a total of $308.7 million of senior notes at par to investors of which RCC Real Estate purchased 100% of the class J senior notes (rated BB: Fitch) and class K senior notes (rated B:Fitch) for $43.1 million.  In addition, Resource Real Estate Funding 2006-1 CDO Investor, LLC, a subsidiary of RCC Real Estate, purchased a $36.3 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 RREF CDO 2006-1 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 RREF CDO 2006-1.  The reinvestment period for RREF 2006-1 ended in September 2011 which results in the sequential pay down of notes as underlying collateral matures and pays down.  As of December 31, 2012, $29.7 million of Class A-1 notes have been paid down.

The senior notes issued to investors by RREF CDO 2006-1 consist of the following classes:  (i) $129.4 million of class A-1 notes bearing interest at one-month LIBOR plus 0.32%; (ii) $17.4 million of class A-2 notes bearing interest at one-month LIBOR plus 0.35%; (iii) $5.0 million of class A-2 notes bearing interest at a fixed rate of 5.842%; (iv) $6.9 million of class B notes bearing interest at one-month LIBOR plus 0.40%; (v) $20.7 million of class C notes bearing interest at one-month LIBOR plus 0.62%; (vi) $15.5 million of class D notes bearing interest at one-month LIBOR plus 0.80%; (vii) $20.7 million of class E notes bearing interest at one-month LIBOR plus 1.30%; (viii) $19.8 million of class F notes bearing interest at one-month LIBOR plus 1.60%; (ix) $17.3 million of class G notes bearing interest at one-month LIBOR plus 1.90%; (x) $12.9 million of class H notes bearing interest at one-month LIBOR plus 3.75%, (xi) $14.7 million of Class J notes bearing interest at a fixed rate of 6.00% and (xii) $28.4 million of Class K notes bearing interest at a fixed rate of 6.00%.  As a result of RSO’s ownership of the Class J and K senior notes, these notes eliminate in consolidation.  All of the notes issued mature in August 2046, although RSO has the right to call the notes anytime after August 2016 until maturity.  The weighted average interest rate on all notes issued to outside investors and net of repurchased notes was 1.42% and 1.44% at December 31, 2012 and 2011, respectively.

During the year ended December 31, 2012 RSO repurchased $4.3 million of the Class A-1 notes and $4.0 million of the Class C notes in RREF CDO 2006-1 at a weighted average price of 81.63% to par which resulted in a $1.5 million gain reported as a gain on the extinguishment of debt in the consolidated statements of income.  During the year ended December 31, 2011, RSO did not repurchase any notes.

In connection with RSO’s ownership of certain notes held by RREF CDO 2006-1, on June 21, 2011 RSO surrendered for cancellation, without consideration, to the trustee of RREF CDO 2006-1 the following outstanding notes, which previously eliminated in consolidation:  $6.9 million of the Class B notes, $7.7 million of the Class C notes, $5.52 million of the Class D notes, $7.0 million of the Class E notes and $5.25 million of the Class F notes.  The surrendered notes were canceled by the trustee pursuant to the applicable indenture, and the obligations due under those notes were deemed extinguished.  The effect of these cancellations was to improve the CDO’s performance with respect to its over-collateralization and interest coverage tests, with which it was already in compliance before the cancellation, and to secure RSO’s long-term interest in this structured vehicle.

As a result of RSO’s ownership of senior notes, both the notes repurchased subsequent to closing and those retained at the CDO’s closing eliminate in consolidation.

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Whitney CLO I

In February 2011, RSO acquired the rights to manage the assets held by Whitney CLO I. In October 2012, RSO purchased a $20.9 million preferred equity interest at a discount of 42.5% which represents 67% of the outstanding preference shares in Whitney CLO I. Based upon that purchase, RSO determined that it had a controlling interest and consolidated Whitney CLO I. The preferred equity interest is subordinated in right of payment to all other securities issued by Whitney CLO I.

The balance of senior notes to investors when RSO acquired a controlling interest in October 2012 were as follows: (i) $48.8 million of class A-1L notes bearing interest at LIBOR plus 0.32%; (ii) $26.5 million of class A-1LA notes bearing interest at LIBOR plus 0.29%; (iii) $36.5 million of class A-1LB notes bearing interest at LIBOR plus 0.45%; (iv) $19.75 million of class A-2F notes bearing interest at LIBOR plus 5.19%; (v) $15.0 million of class A-2L notes bearing interest at LIBOR plus 0.57%; (vi) $25.0 million of class A-3L notes bearing interest at LIBOR plus 1.05%; (vii) $23.5 million of class B-1LA notes bearing interest at LIBOR plus 2.1%; (viii) $14.36 million of class B-1LB notes bearing interest at LIBOR plus 1.0%. All of the notes issued mature on March 1, 2017. RSO has the right to call the notes anytime after March 1, 2009 until maturity in March 2017. The weighted average interest rate on all notes was 1.82% at December 31, 2012. The reinvestment period for Whitney CLO I ended in March 2011 which results in the sequential pay down of notes as underlying collateral matures and pays down. Since October 2012, $15.5 million of Class A-1L and $19.9 million of Class A-1LA notes have been paid down.

Apidos CLO VIII

In October 2011, RSO closed Apidos CLO VIII, a $350 million CLO transaction that provides financing for bank loans.  The investments held by Apidos CLO VIII collateralize the debt it issued and, as a result, the investments are not available to RSO, its creditors or stockholders.  Apidos CLO VIII issued a total of $317.6 million of senior notes at a discount of 4.4% to investors and RCC commercial purchased a $15.0 million interest representing 43% of the outstanding subordinated debt.  The remaining 57% of subordinated debt is owned by unrelated third parties.  The reinvestment period for Apidos CLO VIII will end in October 2014.  The subordinated debt interest is subordinated in right of payment to all other securities issued by Apidos CLO VIII.

The senior notes issued to investors by Apidos CLO VIII consist of the following classes: (i) $231.2 million of class A-1 notes bearing interest at LIBOR plus 1.50%; (ii) $35.0 million of class A-2 notes bearing interest at LIBOR plus 2.00%; (iii) $17.3 million of class B-1 notes bearing interest at LIBOR plus 2.50%; (iv) $6.8 million of class B-2 notes bearing interest at LIBOR plus 2.50%; (v) $14.1 million of class C notes bearing interest at LIBOR plus 3.10% and (vi) $13.2 million of class D notes bearing interest at LIBOR plus 4.50%. All of the notes issued mature on October 17, 2021, although RSO has the right to call the notes anytime from October 17, 2013 until maturity.  The weighted average interest rate on all notes was 2.16% and 2.42% at December 31, 2012 and 2011, respectively.

Apidos Cinco CDO

In May 2007, RSO closed Apidos Cinco CDO, a $350.0 million CDO transaction that provides financing for bank loans.  The investments held by Apidos Cinco CDO collateralize the debt it issued and, as a result, the investments are not available to RSO, its creditors or stockholders.  Apidos Cinco CDO issued a total of $322.0 million of senior notes at par to investors and RCC commercial purchased a $28.0 million equity interest representing 100% of the outstanding preference shares.  The reinvestment period for Apidos Cinco CDO will end in May 2014.  The equity interest is subordinated in right of payment to all other securities issued by Apidos Cinco CDO.

The senior notes issued to investors by Apidos Cinco CDO consist of the following classes: (i) $37.5 million of class A-1 notes bearing interest at LIBOR plus 0.24%; (ii) $200.0 million of class A-2a notes bearing interest at LIBOR plus 0.23%; (iii) $22.5 million of class A-2b notes bearing interest at LIBOR plus 0.32%; (iv) $19.0 million of class A-3 notes bearing interest at LIBOR plus 0.42%; (v) $18.0 million of class B notes bearing interest at LIBOR plus 0.80%; (vi) $14.0 million of class C notes bearing interest at LIBOR plus 2.25% and (vii) $11.0 million of class D notes bearing interest at LIBOR plus 4.25%. All of the notes issued mature on May 14, 2020, although RSO has the right to call the notes anytime after May 14, 2011 until maturity.  The weighted average interest rate on all notes was 0.82% and 0.95% at December 31, 2012 and 2011, respectively.

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Apidos CDO III

In May 2006, RSO closed Apidos CDO III, a $285.5 million CDO transaction that provides financing for bank loans.  The investments held by Apidos CDO III collateralize the debt it issued and, as a result, the investments are not available to RSO, its creditors or stockholders.  Apidos CDO III issued a total of $262.5 million of senior notes at par to investors and RCC Commercial purchased a $23.0 million equity interest representing 100% of the outstanding preference shares.  The reinvestment period for Apidos CDO III will end in December 2012.  The equity interest is subordinated in right of payment to all other securities issued by Apidos CDO III.

The senior notes issued to investors by Apidos CDO III consist of the following classes:  (i) $212.0 million of class A-1 notes bearing interest at 3-month LIBOR plus 0.26%; (ii) $19.0 million of class A-2 notes bearing interest at 3-month LIBOR plus 0.45%; (iii) $15.0 million of class B notes bearing interest at 3-month LIBOR plus 0.75%; (iv) $10.5 million of class C notes bearing interest at 3-month LIBOR plus 1.75%; and (v) $6.0 million of class D notes bearing interest at 3-month LIBOR plus 4.25%.  All of the notes issued mature on September 12, 2020, although RSO has the right to call the notes anytime after September 12, 2011 until maturity.  The weighted average interest rate on all notes was 0.80% and 0.99% at December 31, 2012 and 2011, respectively. The reinvestment period for Apidos CDO III ended in June 2012 which results in the sequential pay down of notes as underlying collateral matures and pays down.  As of December 31, 2012, $40.5 million of Class A-1 notes have been paid down.

Apidos CDO I

In August 2005, RSO closed Apidos CDO I, a $350.0 million CDO transaction that provides financing for bank loans.  The investments held by Apidos CDO I collateralize the debt it issued and, as a result, the investments are not available to RSO, its creditors or stockholders.  Apidos CDO I issued a total of $321.5 million of senior notes at par to investors and RCC Commercial purchased a $28.5 million equity interest representing 100% of the outstanding preference shares.  The equity interest is subordinated in right of payment to all other securities issued by Apidos CDO I.

The senior notes issued to investors by Apidos CDO I consist of the following classes:  (i) $259.5 million of class A-1 notes bearing interest at 3-month LIBOR plus 0.26%; (ii) $15.0 million of class A-2 notes bearing interest at 3-month LIBOR plus 0.42%; (iii) $20.5 million of class B notes bearing interest at 3-month LIBOR plus 0.75%; (iv) $13.0 million of class C notes bearing interest at 3-month LIBOR plus 1.85%; and (v) $8.0 million of class D notes bearing interest at a fixed rate of 9.251%.  All of the notes issued mature on July 27, 2017, although RSO has the right to call the notes anytime after July 27, 2010 until maturity.  The weighted average interest rate on all notes was 1.07% and 1.04% and at December 31, 2012 and 2011, respectively. The reinvestment period for Apidos CDO I ended in July 2011 which results in the sequential pay down of notes as underlying collateral matures and pays down.  As of December 31, 2012, $116.3 million of Class A-1 Notes have been paid down.

During the year ended December 31, 2012 RSO repurchased $2.0 million of the Class B notes in Apidos CDO I at a weighted average price of 85.11% to par which resulted in a $298,000  gain reported as a gain on the extinguishment of debt in the consolidated statements of income.  During the year ended December 31, 2011, RSO did not repurchase any notes.

Unsecured Junior Subordinated Debentures

In May 2006 and September 2006, RSO formed RCT I and RCT II, respectively, for the sole purpose of issuing and selling capital securities representing preferred beneficial interests.  Although RSO owns 100% of the common securities of RCT I and RCT II, RCT I and RCT II are not consolidated into RSO’s consolidated financial statements because RSO is not deemed to be the primary beneficiary of these entities.  In connection with the issuance and sale of the capital securities, RSO issued junior subordinated debentures to RCT I and RCT II of $25.8 million each, representing RSO’s maximum exposure to loss.  The debt issuance costs associated with the junior subordinated debentures for RCT I and RCT II are included in borrowings and are being amortized into interest expense in the consolidated statements of income using the effective yield method over a ten year period.

The debt issuance costs associated with the junior subordinated debentures for RCT I and RCT II at December 31, 2012 were $358,000 and $377,000, respectively.  The debt issuance costs associated with the junior subordinated debentures for RCT I and RCT II at December 31, 2011, were $450,000 and $467,000, respectively.  The rates for RCT I and RCT II, at December 31, 2012, were 4.26% and 4.26%, respectively.  The rates for RCT I and RCT II, at December 31, 2011, were 4.32% and 4.38%, respectively.

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The rights of holders of common securities of RCT I and RCT II are subordinate to the rights of the holders of capital securities only in the event of a default; otherwise, the common securities’ economic and voting rights are pari passu with the capital securities.  The capital and common securities of RCT I and RCT II are subject to mandatory redemption upon the maturity or call of the junior subordinated debentures held by each.  Unless earlier dissolved, RCT I will dissolve on May 25, 2041 and RCT II will dissolve on September 29, 2041.  The junior subordinated debentures are the sole assets of RCT I and RCT II, mature on September 30, 2036 and October 30, 2036, respectively, and may be called at par by RSO any time after September 30, 2011 and October 30, 2011, respectively.  RSO records its investments in RCT I and RCT II’s common securities of $774,000 each as investments in unconsolidated trusts and records dividend income upon declaration by RCT I and RCT II.

Repurchase and Credit Facilities

CMBS - Term Repurchase Facility

In February 2011, the registrant's wholly-owned subsidiaries, RCC Commercial Inc. and RCC Real Estate, Inc.(collectively, the "Companies"), entered into a master repurchase and securities contract (the “Facility”) with Wells Fargo Bank, National Association (“Wells Fargo”).  Under the Facility, from time to time, the parties may enter into transactions in which the Companies and Wells Fargo agree to transfer from the Companies to Wells Fargo all of their right, title and interest to certain commercial mortgage backed securities and other assets (the “Assets”) against the transfer of funds by Wells Fargo to the Companies, with a simultaneous agreement by Wells Fargo to transfer back to the Companies such Assets at a date certain or on demand, against the transfer of funds from the Companies to Wells Fargo.  The maximum amount of the Facility is $100.0 million which has a two year term with a one year option to extend, and an interest rate equal to the one-month London Interbank Offered Rate (LIBOR) plus 1.29% plus a .25% initial structuring fee and a .25% extension fee upon exercise. On February 1, 2013, RSO exercised the option to extend the CMBS Term Repurchase Facility for a period of one year. The Companies will enter into interest rate swaps and cap agreements to mitigate interest rate risk under the Facility.

The Facility contains customaryevents of default, including payment defaults, breaches of covenants and/or certain representations and warranties, cross-defaults, guarantor defaults, and the institution of bankruptcy or insolvency proceedings that remain unstayed.  The remedies for such events of default are also customary for this type of transaction and include the acceleration of all obligations of the Companies to repay the purchase price for purchased assets.

 The Facility also contains margin call provisions relating to a decline in the market value of a security. Under these circumstances, Wells Fargo may require the Companies to transfer cash in an amount sufficient to eliminate any margin deficit resulting from such a decline.

 Under the terms of the Facility and pursuant to a guarantee agreement dated February 1, 2011 (the “Guaranty”), the registrant agreed to unconditionally and irrevocably guarantee to Wells Fargo the prompt and complete payment and performance of (a) all payment obligations owing by the Companies to Wells Fargo under or in connection with the Facility and any other governing agreements and any and all extensions, renewals, modifications, amendments or substitutions of the foregoing; (b) all expenses, including, without limitation, reasonable attorneys' fees and disbursements, that are incurred by Wells Fargo in the enforcement of any of the foregoing or any obligation of the registrant; and (c) any other obligations of the Companies with respect to Wells Fargo under each of the governing documents.  The Guaranty includes covenants that, among other things, limit the registrant's leverage and debt service ratios and require maintenance of certain levels of cash and net worth. RCC Real Estate was in compliance with all debt covenants as of December 31, 2012.

At December 31, 2012, RCC Real Estate had borrowed $42.5 million (net of $23,000 of deferred debt issuance costs), all of which RSO had guaranteed.  At December 31, 2012, borrowings under the repurchase agreement were secured by highly-rated CMBS with an estimated fair value of $51.4 million and a weighted average interest rate of one-month LIBOR plus 1.32%, or 1.53%.  At December 31, 2011, RCC Real Estate had borrowed $41.0 million (net of $494,000 of deferred debt issuance costs), all of which RSO had guaranteed.  At December 31, 2011, borrowings under the repurchase agreement were secured by highly-rated CMBS with an estimated fair value of $47.1 million and a weighted average interest rate of one-month LIBOR plus 1.25%, or 1.54%. At December 31, 2012 and 2011, RSO had repurchase agreements of $20.4 million and $14.9 million, respectively, that were linked to CMBS purchases and accounted for as Linked Transactions, and as such, the linked repurchase agreements are not included in the borrowings table.

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The following table shows information about the amount at risk under this facility (dollars in thousands):

	Amount at Risk (1)		Weighted Average Maturity in Days	Weighted Average Interest Rate
December 31, 2012:
Wells Fargo Bank, National Association.	$	10,722	18	1.53%
December 31, 2011:
Wells Fargo Bank, National Association.	$	8,461	18	1.54%

(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.

(2) $12.2 million and $14.9 million of linked repurchase agreement borrowings are being included as derivative instruments as of December 31, 2012 and 2011, respectively.

CRE - Term Repurchase Facility

On February 27, 2012, RSO entered into a master repurchase and securities agreement with Wells Fargo Bank, National Association to finance the origination of commercial real estate loans.  The facility has a maximum amount of $150.0 million and an initial 18 month term with twoone year options to extend.  RSO paid an origination fee of 37.5 basis points (0.375)%.  RSO guaranteed RCC Real Estate’s performance of its obligations under the repurchase agreement.  At December 31, 2012, RCC Real Estate had borrowed $58.8 million (net of $348,000 of deferred debt issuance costs), all of which RSO had guaranteed.  At December 31, 2012, borrowings under the repurchase agreement were secured by several commercial real estate loans with an estimated fair value of $85.4 million and a weighted average interest rate of one-month LIBOR plus 2.67%, or 2.88%.RSO had no borrowings under the facility as of December 31, 2011.

The Facility contains customaryevents of default, including payment defaults, breaches of covenants and/or certain representations and warranties, cross-defaults, guarantor defaults, and the institution of bankruptcy or insolvency proceedings that remain unstayed.  The remedies for such events of default are also customary for this type of transaction and include the acceleration of all obligations of the Companies to repay the purchase price for purchased assets.

 The Facility also contains margin call provisions relating to a decline in the market value of an security. Under these circumstances, Wells Fargo may require the Companies to transfer cash in an amount sufficient to eliminate any margin deficit resulting from such a decline.

 Under the terms of the Facility and pursuant to a guarantee agreement dated February 27, 2012 (the “Guaranty”), the registrant agreed to unconditionally and irrevocably guarantee to Wells Fargo the prompt and complete payment and performance of (a) all payment obligations owing by the Companies to Wells Fargo under or in connection with the Facility and any other governing agreements and any and all extensions, renewals, modifications, amendments or substitutions of the foregoing; (b) all expenses, including, without limitation, reasonable attorneys' fees and disbursements, that are incurred by Wells Fargo in the enforcement of any of the foregoing or any obligation of the registrant; and (c) any other obligations of the Companies with respect to Wells Fargo under each of the governing documents.  The Guaranty  includes covenants that, among other things, limit the registrant's leverage and debt service ratios and require maintenance of certain levels of cash and net worth. RCC Real Estate was in compliance with all debt covenants as of December 31, 2012.

	Amount at Risk (1)		Weighted Average Maturity in Days	Weighted Average Interest Rate
December 31, 2012:
Wells Fargo Bank, National Association.	$	26,332	18	2.88%

(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.

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CRE - Repurchase Facility

On March 8, 2005, RSO entered into a master repurchase and securities agreement with Deutsche Bank Securities Inc. to finance the origination of commercial real estate loans. RSO guaranteed RCC Real Estate's performance of its obligations under the repurchase agreement. There is no stated maximum amount of the facility and the repurchase agreement has an initial 12 month term with monthly resets of one-month LIBOR plus 3.25%.   RSO had repaid all borrowings under this agreement as of December 31, 2012.

Short-Term Repurchase Agreements

On March 8, 2005, RSO entered into a master repurchase and securities agreement with Deutsche Bank Securities Inc. to finance the origination of CMBS and commercial real estate loans.  There is no stated maximum amount of the facility and the repurchase agreement has an initial 12 month term with monthly resets of interest rates.  RSO guaranteed RCC Real Estate’s performance of its obligations under the repurchase agreement.  At December 31, 2012, RCC Real Estate had borrowed $3.1 million, all of which RSO had guaranteed.  At December 31, 2012, borrowings under the repurchase agreement were secured by a CMBS bond with an estimated fair value of $5.1 million and a weighted average interest rate of one-month LIBOR plus 1.25%, or 1.46%.  RSO had no borrowings under this facility as of December 31, 2011.

The following table shows information about the amount at risk under this facility (dollars in thousands);

	Amount at Risk (1)		Weighted Average Maturity in Days	Weighted Average Interest Rate
December 31, 2012:
Deutsche Bank Securities, Inc.	$	2,069	7	1.46%

(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.

On February 14, 2012, RSO entered into a master repurchase and securities agreement with Wells Fargo Securities, LLC to finance the origination of CMBS.  There is no stated maximum amount of the facility and the repurchase agreement has no stated maturity date with monthly resets of interest rates.  RSO guaranteed RCC Real Estate’s performance of its obligations under the repurchase agreement.  At December 31, 2012, RCC Real Estate had borrowed $5.4 million, all of which RSO had guaranteed.  At December 31, 2012, borrowings under the repurchase agreement were secured by two CMBS bonds with an estimated fair value of $8.5 million and a weighted average interest rate of one-month LIBOR plus 1.25%, or 1.46%.  RSO had no borrowings under this facility as of December 31, 2011.

The following table shows information about the amount at risk under this facility (dollars in thousands);

	Amount at Risk (1)		Weighted Average Maturity in Days	Weighted Average Interest Rate
December 31, 2012:
Wells Fargo Securities, LLC	$	1,956	28	1.46	%

(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.

(2) $3.5 million of linked repurchase agreement borrowings are being included as derivative instruments as of December 31, 2012.

On November 6, 2012, RSO entered into a master repurchase and securities agreement with JP Morgan Securities LLC to finance the origination of CMBS.  There is no stated maximum amount of the facility and the repurchase agreement has no stated maturity with monthly resets of interest rates.  At December 31, 2012, RCC Real Estate had borrowed $4.7 million, all of which RSO had guaranteed.  At December 31, 2012, borrowings under the repurchase agreement were secured by a CMBS bond with an estimated fair value of $7.2 million and a weighted average interest rate of one-month LIBOR plus 0.80%, or 1.01%.  RSO had no borrowings under this facility as of December 31, 2011.

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The following table shows information about the amount at risk under this facility (dollars in thousands);

	Amount at Risk (1)		Weighted Average Maturity in Days	Weighted Average Interest Rate
December 31, 2012:
JP Morgan Securities	$	2,544	11	1.01	%

(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.

(2) $4.7 million of linked repurchase agreement borrowings are being included as derivative instruments as of December 31, 2012.

Revolving Credit Facility

On July 7, 2011, RSO and RCC Real Estate entered into a $10.0 million revolving credit facility with TBBK.  The facility provided bridge financing for up to five business days, which enabled RSO and RCC Real Estate to fund real estate loans to third parties prior to their sale to RSO’s CRE CDOs.  TBBK entered into July 7, 2011.  The facility was secured by a pledge of $32.9 million of the Class A-1 notes of RREF CDO 2006-1, which are owned by RCC Real Estate.  RSO had no borrowings under this revolving credit facility as of December 31, 2012 and 2011. The note became due and payable on June 30, 2012 and was terminated.  

Mortgage Payable

On August 1, 2011, RSO, through RCC Real Estate, purchased Whispertree Apartments, a 504 unit multi-family property located in Houston, Texas, for $18.1 million.  The property was 95% occupied at acquisition.  In conjunction with the purchase of the property, RSO entered into a seven year mortgage of $13.6 million with a lender.  The mortgage bears interest at a rate of one-month LIBOR plus 3.95%.  As of December 31, 2012 and 2011 the borrowing rate was 4.17% and 4.23%, respectively.

L.    Related party transactions - RSO

Relationship with LEAF.LEAF originates and manages equipment leases and notes on behalf of RSO.

On March 5, 2010, RSO 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 RSO provided an $8.0 million credit facility to LEAF II, of which all $8.0 million has been funded.  The credit facility had a one year term at 12% per year, payable quarterly, and was secured by all the assets of LEAF II Receivables Funding, LLC, including its entire ownership interest in LEAF II.  RSO 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, RSO entered into an amendment to extend the maturity to February 15, 2012 and 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, RSO 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. The loan amount outstanding at December 31, 2012 and 2011 was $6.8 million and 7.8 million, respectively.

In the formation of LEAF, RSO received 31,341 shares of Series A Preferred Stock, 4,872 shares of newly issued 8% Series B Redeemable Preferred Stock and 2,364 shares of newly issued Series D Redeemable Preferred Stock, collectively representing, on a fully-diluted basis, a 26.7% interest in LEAF in exchange for its prior interest in LEAF.  RSO’s resulting interest is accounted for under the equity method.  For the year ended December 31, 2012, RSO recorded a loss of $3.3 million which was recorded in equity in earnings of unconsolidated subsidiaries on the consolidated statement of income.  No such loss was incurred for the year ended December 31, 2011. RSO’s investment in LEAF was valued at $33.1 million and $36.3 million as of December 31, 2012 and 2011, respectively.

Relationship with CVC Credit Partners.On April 17, 2012,ACM, a former subsidiary of the Company, was sold to CVC, a joint venture entity in which the Company owns a 33% interest.  CVC Credit Partners manages internally and externally originated bank loan assets on RSO’s behalf.  On February 24, 2011, a subsidiary of RSO 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 Resource Capital Asset Management ("RCAM"). Through RCAM, RSO is entitled to collect senior, subordinated and incentive fees related to five Collateralized Loan Obligation issuers (“CLO”) holding approximately $1.9 billion in assets managed by RCAM.  RCAM is assisted by CVC Credit Partners in managing the five CLOs.   CVC Credit Partners

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is entitled to 10% of all subordinated fees and 50% of the incentive fees received by RCAM.  For the years ended December 31, 2012 and 2011, CVC Credit Partners incurred subordinated fees of $800,000 and $1.0 million, respectively. In October 2012, RSO purchased 66.6% of the preferred equity in one of the RCAM CLOs.

Relationship with TBBK. Walter Beach, a director of The Bancorp, Inc. since 1999, has also served as a director of RSO since March 2005. On March 14, 2011, RSO paid TBBK a loan commitment fee in the amount of $31,500 in connection with TBBK’s commitment to establish a credit facility for the benefit of RSO.  On July 7, 2011, RSO and RCC Real Estate entered into a $10.0 million revolving credit facility with TBBK.  The facility provided bridge financing for up to five business days, which enabled RSO and RCC Real Estate to fund real estate loans to third parties prior to their sale to RSO’s CRE CDOs.  The facility was evidenced by a Revolving Judgment Note and Security Agreement by and among the borrowers and Bancorp and was secured by a pledge of $32.9 million of the Class A-1 notes of RREF CDO 2006-1 and was owned by RCC Real Estate.  The note matured on June 30, 2012.  There were no outstanding borrowings as of December 31, 2012 or 2011.

Relationship with Ledgewood.  Until 1996, Edward E. Cohen, a director who was RSO’s Chairman from its inception until November 2009, was of counsel to Ledgewood, P.C., a law firm.  In addition, one of RSO’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 years ended December 31, 2012 and 2011, RSO paid Ledgewood $438,000 and $238,000, respectively, in connection with legal services rendered to RSO.

M.    Fair value of financial instruments

In analyzing the fair value of its investments accounted for on a fair value basis, RSO follows the fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.  RSO determines fair value based on quoted prices when available or, if quoted prices are not available, through the use of alternative approaches, such as discounting the expected cash flows using market interest rates commensurate with the credit quality and duration of the investment.  The hierarchy followed defines three levels of inputs that may be used to measure fair value:

Level 1 - Quoted prices in active markets for identical assets and liabilities that the reporting entity has the ability to access at the measurement date. 

Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset and liability or can be corroborated with observable market data for substantially the entire contractual term of the asset or liability.

Level 3 - Unobservable inputs that reflect the entity’s own assumptions about the assumptions that market participants would use in the pricing of the asset or liability and are consequently not based on market activity, but rather through particular valuation techniques.

The determination of where an asset or liability falls in the hierarchy requires significant judgment.  RSO evaluates its hierarchy disclosures each quarter; depending on various factors, it is possible that an asset or liability may be classified differently from quarter to quarter.  However, RSO expects that changes in classifications between levels will be rare.

Certain assets and liabilities are measured at fair value on a recurring basis.  The following is a discussion of these assets and liabilities as well as the valuation techniques applied to each for fair value measurement.

RSO reports its investment securities available-for-sale at fair value.  To determine fair value, RSO uses a dealer quote which typically will be the dealer who sold RSO the security.  RSO has been advised that, in formulating their quotes, dealers may use recent trades in the particular security, if any, market activity in similar securities, if any, or internal valuation models.  These quotes are non-binding.  Based on how dealers develop their quotes, market liquidity and levels of trading, RSO categorizes these investments as either Level 2 or Level 3 in the fair value hierarchy.  RSO evaluates the reasonableness of the quotes it receives by applying its own valuation models.  If there is a material difference between a quote RSO receives and the value indicated by its valuation models, RSO will evaluate the difference.  As part of that evaluation, RSO will discuss the difference with the dealer, who may revise its quote based upon these discussions.  Alternatively, RSO may revise its valuation models.

RSO reports its investment securities, trading at fair value, which is based on a dealer quotes or bids which are validated using an income approach utilizing appropriate prepayment, default and recovery rates as well as an independent third-party

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valuation.  Any changes in fair value are recorded on RSO’s results of operations as net unrealized gain on investment securities, trading.

The CMBS underlying RSO’s Linked Transactions are valued using the same techniques to those used for RSO’s other CMBS. The value of the underlying CMBS is then netted against the carrying amount (which approximates fair value) of the repurchase agreement borrowing at the valuation date. The fair value of Linked Transactions also includes accrued interest receivable on the CMBS and accrued interest payable on the underlying repurchase agreement borrowings. RSO’s Linked Transactions are classified as Level 2 or Level 3 in the fair value hierarchy.

Derivatives (interest rate swaps and interest rate caps), both assets and liabilities, are reported at fair value, and are valued by a third-party pricing agent using an income approach with models that use, as their primary inputs, readily observable market parameters.  This valuation process considers factors including interest rate yield curves, time value, credit factors and volatility factors.  Although RSO has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads, to evaluate the likelihood of default by RSO and its counterparties.  RSO assesses the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and, if material, categorizes those derivatives within Level 3 of the fair value hierarchy.

The following table presents information about RSO’s assets (including derivatives that are presented net) measured at fair value on a recurring basis and indicates the fair value hierarchy of the valuation techniques utilized by RSO to determine such fair value as follows (in thousands):

	Level 1		Level 2		Level 3		Total
December 31, 2012:
Assets:
Investment securities, trading	$	—	$	—	$	24,843	$	24,843
Investment securities available-for-sale	9,757		132,561		89,272		231,590
CMBS - Linked Transactions	—		4,802		2,033		6,835
Total assets at fair value	$	9,757	$	137,363	$	116,148	$	263,268
Liabilities:
Derivatives (net)	—		610		14,077		14,687
Total liabilities at fair value	$	—	$	610	$	14,077	$	14,687
December 31, 2011:
Assets:
Investment securities, trading	$	—	$	—	$	38,673	$	38,673
Investment securities available-for-sale	—		121,031		19,835		140,866
CMBS - Linked Transactions	—		2,275		—		2,275
Total assets at fair value	$	—	$	123,306	$	58,508	$	181,814
Liabilities:
Derivatives (net)	—		1,210		12,000		13,210
Total liabilities at fair value	$	—	$	1,210	$	12,000	$	13,210

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The following table presents additional information about assets which are measured at fair value on a recurring basis for which RSO has utilized Level 3 inputs (in thousands):

	Level 3
Beginning balance, January 1, 2011	$	43,380
Total gains or losses (realized/unrealized):
Included in earnings	2,948
Purchases	38,887
Sales	(18,181		)
Paydowns	(3,212		)
Transfers out of Level 3	(4,437		)
Unrealized losses – included in accumulated other comprehensive income	(877		)
Beginning balance, January 1, 2012	58,508
Total gains or losses (realized/unrealized):
Included in earnings	14,105
Purchases	8,341
Sales	(37,632		)
Paydowns	(2,012		)
Unrealized gains (losses) – included in accumulated other comprehensive income	8,457
Transfers from level 2	66,381
Ending balance, December 31, 2012	$	116,148

The following table presents additional information about liabilities which are measured at fair value on a recurring basis for which RSO has utilized Level 3 inputs (in thousands):

	Level 3
Beginning balance, January 1, 2011	$	10,929
Unrealized losses – included in accumulated other comprehensive income	1,071
Beginning balance, January 1, 2012	12,000
Unrealized losses – included in accumulated other comprehensive income	2,077
Ending balance, December 31, 2012	$	14,077

RSO had $4.6 million of losses included in earnings due to the other-than-temporary impairment charges of one assets during the year ended December 31, 2011. These losses are included in the consolidated statements of operations as net impairment losses recognized in earnings. There were no losses included in earnings due to other-than-temporary impairment charges during the year December 31, 2012.

Loans held for sale consist of bank loans and commercial real estate loans (“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, RSO classifies these loans as nonrecurring Level 2.  For RSO’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 amount of nonrecurring fair value losses for impaired loans for the years ended December 31, 2012 and 2011 was $7.8 million and $11.4 million, respectively, and is included in the consolidated statements of operations as provision for loan and lease losses.

185

RESOURCE AMERICA, INC.

NOTES TO RESTATED CONSOLIDATED FINANCIAL STATEMENTS − (Continued)

SEPTEMBER 30, 2012

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 RSO to determine such fair value as follows (in thousands):

	Level 1		Level 2		Level 3		Total
December 31, 2012:
Assets:
Loans held for sale	$	—	$	14,894	$	34,000	$	48,894
Impaired loans	—		4,366		21,000		25,366
Total assets at fair value	$	—	$	19,260	$	55,000	$	74,260
December 31, 2011:
Assets:
Loans held for sale	$	—	$	3,154	$	—	$	3,154
Impaired loans	—		1,099		—		1,099
Total assets at fair value	$	—	$	4,253	$	—	$	4,253

For Level 3 assets and liabilities measured at fair value on a recurring or non-recurring basis as of December 31, 2012, the significant unobservable inputs used in the fair value measurements were as follows (in thousands):

	Fair Value at December 31, 2012			Valuation Technique	Significant Unobservable Inputs	Significant Unobservable Input Value
Impaired loans	$	21,000		Discounted cash flow	Cap rate	10.00%
Interest rate swap agreements	$	(14,687	)	Discounted cash flow	Weighted average credit spreads	4.98%

RSO is required to disclose the fair value of financial instruments for which it is practicable to estimate that value.  The fair value of short-term financial instruments such as cash and cash equivalents, restricted cash, principal paydown receivable, interest receivable, distribution payable and accrued interest expense approximates their carrying value on the consolidated balance sheet.  The fair value of RSO’s investment securities-trading is reported in section D. Investment securities - trading section above. The fair value of RSO’s investment securities available-for-sale is reported in section E. Investment securities available-for-sale above. 

Loans held-for-investment:  The fair value of RSO’s Level 2 Loans held-for-investment was primarily measured using a third-party pricing service.  The fair value of RSO’s Level 3 Loans held-for-investment was 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.

Junior subordinated notes are estimated by obtaining quoted prices for similar assets in active markets.

186

RESOURCE AMERICA, INC.

NOTES TO RESTATED CONSOLIDATED FINANCIAL STATEMENTS − (Continued)

SEPTEMBER 30, 2012

The fair values of the Company’s remaining financial instruments that are not reported at fair value on the consolidated balance sheet are reported below (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)
December 31, 2012:
Loans held-for-investment	$	1,793,780	$	1,848,617	$	—	$	1,186,642	$	661,975
Loans receivable-related party	$	8,324	$	8,324	$	—	$	—	$	8,324
CDO notes	$	1,614,883	$	1,405,124	$	—	$	1,405,124	$	—
Junior subordinated notes	$	50,814	$	17,308	$	—	$	—	$	17,308
December 31, 2011:
Loans held-for-investment	$	1,772,063	$	1,755,541	$	—	$	1,142,638	$	612,903
Loans receivable-related party	$	9,497	$	9,497	$	—	$	—	$	9,497
CDO notes	$	1,689,413	$	1,034,060	$	—	$	1,034,060	$	—
Junior subordinated notes	$	50,631	$	17,125	$	—	$	—	$	17,125

RAI - Other VIEs

Consolidated VIE - Real estate property

The following table reflects the assets and liabilities of a real estate VIE which was included in the Company’s consolidated balance sheets (in thousands):

	September 30, 2012		September 30, 2011
Cash and property and equipment, net	$	727	$	944
Accrued expenses and other liabilities	189		300

In November 2012, the property underlying the loan was sold for a gain of $831,000 of which $793,000 was attributable to noncontrolling interests; as such, the Company will no longer consolidate the real estate VIE.

VIEs not consolidated

The Company’s investments in RRE Opportunity REIT, a fund that is currently in the offering stage, and its investments in the structured finance entities that hold investments in trust preferred assets (“Trapeza entities”) and asset-backed securities (“Ischus entities”), were all determined to be VIEs that the Company does not consolidate as it does not have the obligation of, or right to, losses or earnings that would be significant to those entities.  With respect to RRE Opportunity REIT, the Company has advanced offering costs that are being reimbursed as the REIT raises additional equity which is included in Receivables from manged entities and related parties, net on the Consolidated Balance Sheets.  Except for those advances, the Company has not provided financial or other support to these VIEs and has no liabilities, contingent liabilities, or guarantees (implicit or explicit) related to these VIEs at September 30, 2012.

The following table presents the carrying amounts of the assets in the Company's consolidated balance sheets that relate to the Company's variable interests in identified nonconsolidated VIEs and the Company's maximum exposure to loss associated with these VIEs in which it holds variable interests at September 30, 2012 (in thousands):

187

RESOURCE AMERICA, INC.

NOTES TO RESTATED CONSOLIDATED FINANCIAL STATEMENTS − (Continued)

SEPTEMBER 30, 2012

	Receivables from Managed Entities and Related Parties, Net (1)		Investments		Maximum Exposure to Loss in Non-consolidated VIEs
RRE Opportunity REIT	$	—	$	1,444	$	1,444
Ischus entities	231		—		231
Trapeza entities	—		967		967
	$	231	$	2,411	$	2,642

(1) Exclusive of expense reimbursements due to the Company.

N.    Income Taxes

RSO operates in such a manner as to quality as a REIT, under the provisions of the Internal Revenue Code of 1986, as amended (the "Code"); therefore, applicable REIT taxable income is included in the taxable income of RSO shareholders, to the extent distributed RSO. To maintain REIT status for federal income tax purposes, RSO is generally required to distribute at least 90% of its REIT taxable income to its shareholders as well as comply with certain other qualification requirements as defined under the Code. As a REIT, RSO is not subject to federal corporate income tax to extent that it distributes 100% of its REIT taxable income each year.

Taxable income from non-REIT activities managed through RSO's taxable REIT subsidiaries is subject to federal, state and local income taxes. RSO's taxable REIT subsidiaries' income taxes are accounted for under the asset and liability method.  Under the asset and liability method, deferred income taxes are recognized for the temporary differences between the financial reporting basis and tax basis of assets and liabilities. 

The following table details the components of income taxes (in thousands):

	Years Ended December 31,
	2012		2011
Provision (benefit) for income taxes:
Current:
Federal	$	11,497	$	7,839
State	776		4,596
Total current	12,273		12,435
Deferred:
Federal	1,769		(305		)
State	560		(94		)
Total deferred	2,329		(399		)
Income tax provision (benefit)	$	14,602	$	12,036

A reconciliation between the federal statutory income tax rate and effective income tax rate is as follows:

	Years Ended December 31,
	2012		2011
Statutory tax	35	%	35	%
State and local taxes, net of federal benefit	1	%	15	%
Valuation allowance for deferred tax assets	—	%	—	%
Subpart F income	13	%	11	%
Basis difference in LEAF Commercial Capital investment	—	%	6	%
Other items	5	%	—	%
	54	%	67	%

188

RESOURCE AMERICA, INC.

NOTES TO RESTATED CONSOLIDATED FINANCIAL STATEMENTS − (Continued)

SEPTEMBER 30, 2012

The components of deferred tax assets and liabilities are as follows (in thousands):

	December 31,
	2012		2011
Deferred tax assets related to:
Investment in securities	$	118	$	119
Intangible assets basis difference	2,557		490
Federal, state and local loss carryforwards	45		17
Capital loss carryforward	12		—
Partnership investment	34		—
Total deferred tax assets	2,766		626
Valuation allowance	—		—
Total deferred tax assets	$	2,766	$	626

Deferred tax liabilities related to:
Unrealized income/loss on investments	$	(4,286	)	$	(1,188	)
Equity investments	(838		)	(394		)
Basis difference in LEAF Commercial Capital investment	(185		)	(3,390		)
Subpart F income	(3,067		)	(652		)
Total deferred tax liabilities	$	(8,376	)	$	(5,624	)

Apidos CDO I, Apidos CDO III and Apidos Cinco CDO, Apidos CLO VIII, and Whitney CLO I, RSO's foreign TRSs, are organized as exempted companies incorporated with limited liability under the laws of the Cayman Islands, and are generally exempt from federal and state income at the corporate level because their activities in the United States are limited to trading in stock and securities for their own account.  Therefore, despite their status as TRSs, they generally will not be subject to corporate tax on their earnings and no provision for income taxes is required; however, because they are “controlled foreign corporations,” RSO will generally be required to include Apidos CDO I's, Apidos CDO III's, Apidos Cinco CDO's, Apidos CLO VIII's, and Whitney CLO I's current taxable income in its calculation of REIT taxable income.

On October 13, 2011, RSO acquired approximately 43% of the equity of Apidos CLO VIII, which is a foreign TRS, organized as an exempted company incorporated with limited liability under the laws of the Cayman Islands.  This equity is directly owned by a domestic TRS of RSO; therefore, its earnings are excluded from RSO's calculation of REIT taxable income and are subject to corporate tax.  Accordingly, a provision for income taxes has been recorded.

On October 27, 2011 RSO reorganized the ownership structure of Apidos CDO I and Apidos CDO III. As a result, the earnings from Apidos CDO I and Apidos CDO III are excluded from RSO's calculation of REIT taxable income and are subject to corporate tax. On January 24, 2012, RSO reorganized the ownership structure of Apidos CDO I and Apidos CDO III.  As a result, for the period January 1, 2012 through January 23, 2012, the earnings from Apidos CDO I and Apidos CDO III are excluded from RSO's calculation of REIT taxable income and are subject to corporate tax. For the period January 24, 2012 and ending December 31, 2012 the earnings from Apidos CDO I are included in RSO's calculation of REIT taxable income.

On October 19, 2012, RSO acquired approximately 66% of the equity of Whitney CLO I, which is a foreign TRS, organized as an exempted company incorporated with limited liability under the laws of the Cayman Islands.  This equity is directly owned by a domestic TRS of RSO; therefore, its earnings are excluded from RSO's calculation of REIT taxable income and are subject to corporate tax.  Accordingly, a provision for income taxes has been recorded.

On November 12, 2012, RSO reorganized the ownership structure of Apidos Cinco CDO and Whitney CLO I.  As a result, for the period November 12, 2012 and ending December 31, 2012, the earnings from Apidos Cinco CDO and Whitney CLO I are excluded from RSO's calculation of REIT taxable income and are subject to corporate tax. Accordingly, a provision for income taxes on the earnings from November 12, 2012 through December 31, 2012 has been recorded.

189

RESOURCE AMERICA, INC.

NOTES TO RESTATED CONSOLIDATED FINANCIAL STATEMENTS − (Continued)

SEPTEMBER 30, 2012

On December 11, 2012, RSO reorganized the ownership structure of Apidos CDO III.  As a result, for the period from January 24, 2012 through December 10, 2012 the earnings from Apidos CDO III are included in RSO's calculation of REIT taxable income.  Also as a result of the reorganization on December 11, 2012, for the period December 11, 2012 and ending December 31, 2012, the earnings from Apidos CDO III are excluded from RSO's calculation of REIT taxable income and are subject to corporate tax. 

Effective January 1, 2007, RSO adopted the provisions of FASB's guidance for uncertain tax positions. This implementation did not have an impact on RSO's balance sheet or results of operations. The guidance prescribes that a tax position should only be recognized if it is more likely than not that the position will be sustained upon examination by the appropriate taxing authority. A tax position that meets this threshold is measured as the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. RSO is required to disclose its accounting policy for classifying interest and penalties, the amount of interest and penalties charged to expense each period as well as the cumulative amounts recorded in the consolidated balance sheets. RSO will continue to classify any tax penalties as other operating expenses and any interest as interest expense. RSO does not have any unrecognized tax benefits that would affect RSO's financial position.

As of December 31, 2012, income tax returns for the calendar years 2009 - 2012 remain subject to examination by Internal Revenue Service ("IRS") and/or any state or local taxing jurisdiction. RSO has not executed any agreements with the IRS or any state and/or local taxing jurisdiction to extend a statue of limitations in relation to any previous year.

NOTE 27 – SUBSEQUENT EVENTS

RAI - Real estate. In January 2013, the Company sold its 10% interest in a real estate joint venture to its partner for $3.0 million. The Company will continue to manage the asset and will receive property management fees in the future.

RAI - Commercial Finance. As of November 21, 2013, the LEAF II loan was paid-off in full and, accordingly, the Company's guarantee for that loan has been terminated.

RSO related subsequent events:

On January 2, 2013, RSO sold two CRE whole loans which are classified as loans held for sale at December 31, 2012 for $34.0 million.

On February 15, 2013, Olympic CLO I Ltd., one of the RCAM managed CLOs, with the consent of the Majority Preferred Shareholders, elected to redeem the outstanding notes in whole.

In April 2013, RSO entered into another stock purchase agreement with LEAF to purchase shares of newly issued Series E Preferred Stock for $2.2 million. The Series E Preferred Stock has priority over the other classes of preferred stock.

On April 2, 2013, RCC Real Estate, a subsidiary of RSO, entered into an amendment of its existing commercial real estate credit facility with Wells Fargo Bank, N.A. The amendment increases the size of the facility to $250.0 million and extends the current term of the facility to February of 2015 and provides two additional one year extension options at RSO’s discretion. RCC Real Estate paid an additional structuring fee of $101,000 and an extension fee of $938,000 in connection with the amendment and will amortize the additional fees over the term of the extension.

On July 19, 2013, an indirect wholly-owned subsidiary of RSO entered into a $200.0 million Master Repurchase Agreement with Deutsche Bank AG to be used to finance RSO’s core commercial real estate lending business. The financing facility matures initially on July 19, 2014, with the right to extend an additional two years to July 16, 2016.

On October 31, 2013, RSO acquired, through RCC Residential, Inc., its newly-formed taxable REIT subsidiary, a residential mortgage origination company, Primary Capital Advisors LC ("PCA"), an Atlanta based firm, for $8.4 million; consisting of $7.6 million in cash and $800,000 in shares of RSO common stock.  Of the $7.6 million cash consideration, $1.8 million was set aside in an escrow account as a contingency for potential purchase price adjustments.

The Company has evaluated subsequent events through the filing of this form and determined that there have not been any events that have occurred that would require adjustments to the consolidated financial statements.

190

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A.    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 periodic reports under the Securities Exchange Act of 1934, as amended, or the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the SEC'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, and as a result of the material weakness in our internal control over financial reporting discussed in "Remediation of Material Weakness" below, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were not effective as of the end of the period covered by this report.

Management’s Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act.  Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Our management assessed the effectiveness of our internal control over financial reporting as of September 30, 2012.  In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control - Integrated Framework.  Based upon this assessment, our management concluded that, as a result of the material weaknesses with respect to the consolidation of Resource Capital Corp (“RSO”), a variable interest entity, as well as surrounding our valuation for two of our legacy real estate investments, our internal control over financial reporting was not effective as of September 30, 2012.

Management’s processes, procedures and controls related to the interpretation and application of ASC 810, Consolidation, were not effective to ensure that the Company appropriately consolidated RSO, which was previously identified and treated as an unconsolidated VIE. Specifically, the controls surrounding the supervision and review of management’s VIE analysis were deemed to be ineffective and the cause of the error being corrected through the restatement of the prior period financial information.

Our independent registered public accounting firm, Grant Thornton LLP, audited our internal control over financial reporting as of September 30, 2012.  Their report dated November 22, 2013, which is included following this Item 9A, expressed an adverse opinion on our internal control over financial reporting.

Changes in Internal Control over Financial Reporting

We are in the process of implementing new procedures to strengthen our internal control over financial reporting. Other than these changes, as discussed below, there were no changes in our internal control over financial reporting during the quarter ended September 30, 2013 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Remediation Plan for Material Weaknesses in Internal Control Over Financial Reporting

Management identified various remedial steps to be implemented with respect to the material weakness in internal control over financial reporting.  We designed our remediation efforts to address the material weakness identified by management in connection with the valuation of two of our legacy real estate investments and to strengthen our internal control over financial reporting. 

191

As of September 30, 2013, we have taken steps to address the material weakness and to improve our internal control over financial reporting with respect to the valuation of certain assets, as follows:

• analyzed and confirmed the accuracy of any significant changes in the methods and assumptions used in valuing our legacy real estate portfolio; and

• formalized our new documentation processes and procedures relative to these valuations.

Management has evaluated its internal control over financial reporting with respect to its determination that RSO should be consolidated and has concluded that the deficiency was associated with our misapplication of the accounting guidance and the insufficient review of the accounting for the consolidation of variable interest entities.

Management has identified remedial steps that it is in the process of implementing with respect to this control weakness, as follows:

• management has reviewed and re-evaluated the relevant accounting literature regarding variable interest entities and the circumstances under which they must be consolidated; and

• management has re-evaluated and will continue to re-evaluate, based on reconsideration events, the treatment of our other unconsolidated variable interest entities to determine whether any of these entities should be consolidated.

Subject to satisfactory completion of the design and testing of these processes and procedures for effectiveness, management believes that the implementation of these new control processes and procedures will remediate the material weaknesses in its internal control over financial reporting and, as a result, its disclosure controls and procedures.

192

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Stockholders and Board of Directors

RESOURCE AMERICA, INC.

We have audited the internal control over financial reporting of Resource America, Inc. (a Delaware corporation) and subsidiaries (the “Company”) as of September 30, 2012, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

A material weakness is a deficiency, or combination of control deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. The following material weaknesses have been identified and included in management’s assessment.

Management concluded that its internal control over financial reporting surrounding its valuation for two of its legacy real estate investments was not effective as of September 30, 2012.

In addition, management concluded that its controls surrounding the supervision and review of management’s variable interest entities analysis were deemed ineffective as of September 30, 2012.

In our opinion, because of the effect of the material weaknesses described above on the achievement of the objectives of the control criteria, the Company has not maintained effective internal control over financial reporting as of September 30, 2012, based on criteria established in Internal Control-Integrated Framework issued by COSO.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements of the Company as of and for the fiscal year ended September 30, 2012. The material weaknesses identified above were considered in determining the nature, timing, and extent of audit tests applied in our audit of the 2012 consolidated financial statements, and this report does not affect our report dated November 22, 2013, which expressed an unqualified opinion on those financial statements.

/s/ GRANT THORNTON LLP

Philadelphia, Pennsylvania

November 22, 2013

193

ITEM 9B.    OTHER INFORMATION.

None.

PART III

ITEM 10.    DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

The information required by this item was set forth in our definitive proxy statement with respect to our 2013 annual meeting of stockholders, as filed on January 28, 2013 (“2013 proxy statement”), which is incorporated herein by this reference.

ITEM 11.    EXECUTIVE COMPENSATION.

The information required by this item was set forth in our 2013 proxy statement, which is incorporated herein by this reference.

ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND

RELATED STOCKHOLDER MATTERS.

The information required by this item was set forth in our 2013 proxy statement, which is incorporated herein by this reference.

ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR

INDEPENDENCE.

The information required by this item was set forth in our 2013 proxy statement, which is incorporated herein by this reference.

ITEM 14.    PRINCIPAL ACCOUNTANT FEES AND SERVICES.

The information required by this item was set forth in our 2013 proxy statement, which is incorporated herein by this reference.

194

PART IV

ITEM 15.    EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a) The following documents are filed as part of this Annual Report on Form 10-K/A

1.	Financial Statements
	Report of Independent Registered Public Accounting Firm
	Consolidated Balance Sheets (Restated) at September 30, 2012 and 2011
	Consolidated Statements of Operations (Restated) for the Years Ended September 30, 2012, 2011 and 2010
	Consolidated Statements of Comprehensive Income (Loss) (Restated) for the Years Ended September 30, 2012, 2011 and 2010
	Consolidated Statements of Changes in Equity (Restated) for the Years Ended September 30, 2012, 2011 and 2010
	Consolidated Statements of Cash Flows (Restated) for the Years Ended September 30, 2012, 2011 and 2010
	Notes to Restated Consolidated Financial Statements − September 30, 2012
2.	Financial Statement Schedules
	Schedule II – Valuation and Qualifying Accounts
	Schedule III - Investments in Real Estate
	Schedule IV – Investments in Mortgage Loans on Real Estate
3.	Exhibits

Exhibit No.	Description
3.1	Restated Certificate of Incorporation of Resource America. (1)
3.2	Amended and Restated Bylaws of Resource America. (1)
4.1	Note Purchase Agreement (including the form of Senior Note and form of Warrant). (2)
10.1(a)	Amended and Restated Loan and Security Agreement, dated March 10, 2011, between Resource America, Inc. and TD Bank, N.A. (5)
10.1(b)	First Amendment to the Amended and Restated Loan and Security Agreement, dated as of November 29, 2011, between Resource America, Inc. and TD Bank, N.A. (7)
10.1(c)	Second Amendment to the Amended and Restated Loan and Security Agreement and Joinder to Loan Documents, dated as of February 15, 2012, between Resource America, Inc. and TD Bank, N.A and the Joining Guarantors set forth therein. (11)
10.1(d)	Third Amendment to the Amended and Restated Loan and Security Agreement and Joinder to Loan Documents, dated as of November 16, 2012, between Resource America, Inc. and TD Bank, N.A and the Joining Guarantors set forth therein. (13)
10.2	Amended and Restated Employment Agreement between Michael S. Yecies and Resource America, Inc., dated December 29, 2008. (3)
10.3	Amended and Restated Employment Agreement between Thomas C. Elliott and Resource America, Inc., dated December 29, 2008. (3)
10.4	Amended and Restated Employment Agreement between Jeffrey F. Brotman and Resource America, Inc., dated December 29, 2008. (3)
10.5	Amended and Restated Employment Agreement between Jonathan Z. Cohen and Resource America, Inc., dated December 29, 2008. (3)
10.6	Amended and Restated Employment Agreement between Steven J. Kessler and Resource America, Inc., dated December 29, 2008. (3)
10.7(a)	Loan Agreement between and among Republic First Bank (d/b/a Republic Bank) and Resource Capital Investor, Inc. and Resource Properties XXX, Inc. (4)
10.7(b)	Loan Modification Agreement between and among Republic First Bank (d/b/a Republic Bank) and Resource Capital Investor, Inc. and Resource Properties XXX, Inc. (6)
10.7(c)	Second Loan Modification Agreement between and among Republic First Bank (d/b/a Republic Bank) and Resource Capital Investor, Inc. and Resource Properties XXX, Inc. (9)

195

10.7(d)	Third Loan Modification Agreement between and among Republic First Bank (d/b/a Republic Bank) and Resource Capital Investor, Inc. and Resource Properties XXX, Inc. (12)
10.8	Settlement Agreement, dated January 9, 2012, by and among Raging Capital Group and Resource America, Inc. (8)
10.9	Sale and Purchase Agreement between Resource America, Inc. and CVC Capital Partners SICAV-FIS, S.A. dated December 29, 2011. (10)
21.1	Subsidiaries of Resource America, Inc.
23.1	Consent of Grant Thornton LLP.
31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of Chief Executive Officer pursuant to Section 1350 18 U.S.C., as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of Chief Financial Officer pursuant to Section 1350 18 U.S.C., as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99.1	Stock Purchase Agreement by and among LEAF Commercial Capital, Inc., LEAF Financial Corporation, Resource TRS, Inc., Resource Capital Corp., Resource America, Inc. and the Purchasers named therein, dated November 16, 2011. (10)
99.2	Amended and Restated Certificate of Incorporation of LEAF Commercial Capital, Inc., dated November 16, 2011. (10)
99.3	LEAF Commercial Capital, Inc. Stockholders' Agreement, dated November 16, 2011. (10)
99.4	Risk factors of Resource Capital Corp. (14)
101	Interactive Data Files

(1) Filed previously as an exhibit to our Quarterly Report on Form 10-Q for the quarter ended December 31, 1999 and by this reference incorporated herein.

(2) Files previously as an exhibit to our Current Report on Form 8-K filed on October 1, 2009 and by this reference incorporated herein.

(3) Filed previously as an exhibit to our Quarterly Report on Form 10-Q for the quarter ended December 31, 2008 and by this reference incorporated herein.

(4) Filed previously as an exhibit to our Current Report on Form 8-K filed on March 3, 2011 and by this reference incorporated herein.

(5) Filed previously as an exhibit to our Current Report on Form 8-K filed on March 15, 2011 and by this reference incorporated herein.

(6) Filed previously as an exhibit to our Current Report on Form 8-K filed on September 28, 2011 and by this reference incorporated herein.

(7) Filed previously as an exhibit to our Current Report on Form 8-K filed on December 2, 2011 and by this reference incorporated herein.

(8) Filed previously as an exhibit to our Current Report on Form 8-K filed on January 11, 2012 and by this reference incorporated herein.

(9) Filed previously as an exhibit to our Current Report on Form 8-K filed on January 17, 2012 and by this reference incorporated herein.

(10) Filed previously as an exhibit to our Quarterly Report on Form 10-Q for the quarter ended December 31, 2011, and by this reference incorporated herein.

(11) Filed previously as an exhibit to our Current Report on Form 8-K filed on February 15, 2012, and by this reference incorporated herein.

(12) Filed previously as an exhibit to our Current Report on Form 8-K filed on October 31, 2012 and by this reference incorporated herein.

(13) Filed previously as an exhibit to our Current Report on Form 8-K filed on November 19, 2012and by this reference incorporated herein.

(14) Filed previously as an exhibit to our Current Report on Form 8-K filed on November 18, 2013and by this reference incorporated herein.

196

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	RESOURCE AMERICA, INC.
November 22, 2013	By:	/s/ Jonathan Z. Cohen
		JONATHAN Z. COHEN
		Chief Executive Officer and President

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

/s/ Edward E. Cohen	Chairman of the Board	November 22, 2013
EDWARD E. COHEN
/s/ Jonathan Z. Cohen	Director, President	November 22, 2013
JONATHAN Z. COHEN	and Chief Executive Officer
	(Principal Executive Officer)
/s/ Michael J. Bradley	Director	November 22, 2013
MICHAEL J. BRADLEY
/s/ Carlos C. Campbell	Director	November 22, 2013
CARLOS C. CAMPBELL
/s/ Donald W. Delson	Director	November 22, 2013
DONALD W. DELSON
/s/ Hersh Kozlov	Director	November 22, 2013
HERSH KOZLOV
/s/ Robert L. Lerner	Director	November 22, 2013
ROBERT L. LERNER
/s/ Andrew M. Lubin	Director	November 22, 2013
ANDREW M. LUBIN
/s/ John S. White	Director	November 22, 2013
JOHN S. WHITE
/s/ Thomas C. Elliott	Senior Vice President	November 22, 2013
THOMAS C. ELLIOTT	and Chief Financial Officer
	(Principal Financial Officer)
/s/ Arthur J. Miller	Vice President	November 22, 2013
ARTHUR J. MILLER	and Chief Accounting Officer
	(Principal Accounting Officer)

197

Resource America, Inc.

Schedule II – Valuation and Qualifying Accounts

(in thousands)

	Balance at Beginning of Year		Additions Charged to Costs and Expenses		Amounts Written-off Against the Allowance, Net of Recoveries				Balance at End of Year
Allowance for management fees – commercial finance:
September 30, 2012	$	8,312	$	16,766	$	—			$	25,078
September 30, 2011	1,075		7,237		—				8,312
September 30, 2010	—		1,852		(777		)		1,075
Allowance for management fees – real estate:
September 30, 2012	$	2,178	$	324	$	—			$	2,502
September 30, 2011	—		2,178		—				2,178
September 30, 2010	—		—		—				—
Allowance for investments in real estate loans:
September 30, 2012	$	—	$	—	$	—			$	—
September 30, 2011	49		—		(49		)		—
September 30, 2010	1,585		49		(1,585		)		49
Allowance for investments in commercial finance assets:
September 30, 2012	$	430	$	138	$	(568	)	(1)	$	—
September 30, 2011	900		1,231		(1,701		)		430
September 30, 2010	3,210		3,307		(5,617		)		900
Allowance for investments in loans held for investment:
September 30, 2012	$	—	$	—	$	—			$	—
September 30, 2011	—		—		—				—
September 30, 2010	—		1		(1		)		—
Allowance for rent receivables:
September 30, 2012	$	15	$	18	$	—			$	33
September 30, 2011	—		15		—				15
September 30, 2010	—		—		—				—

(1)    Includes a $482,000 reduction due to the deconsolidation of LEAF.

Resource America, Inc.

SCHEDULE III

Real Estate and Accumulated Depreciation

September 30, 2012

(dollars in thousands)

Column A	Column B		Column C		Column D		Column E		Column F		Column G	Column H	Column I
Description	Encumbrances		Initial Cost to Company		Cost Capitalized Subsequent to Acquisition		Gross Amount at which Carried at Close of Period		Accumulated Depreciation		Date of Construction	Date Acquired	Life on Which Depreciation in Latest Income is Computed
			Buildings and Land Improvements		Improvements Carrying Costs		Buildings and Land Improvements Total
Real Estate Owned:
Hotel Savannah, GA	$	10,531	$	10,187	$	2,376	$	16,849	$	5,230	1853	6/30/2005	40 years
Commercial Philadelphia, PA	—		2,874		585		1,268		362		1924	1/9/2009	37 years
Assets of Consolidated Variable Interest Entity (a):
Commercial Retail Elkins West, WV	—		1,600		—		1,511		784		1963	7/1/2003	40 years
	$	10,531	$	14,661	$	2,961	$	19,628	$	6,376

(a) The date acquired reflects the date the Company adopted the provisions of FASB Accounting Standards Codification, or ASC, section 810-10.  Amounts as reflected for the variable interest entity are on a one-quarter lag as permitted under ASC 810-10.

Based on an internal assessment of fair value, the Company determined that the office building was impaired and, accordingly, recorded a charge of $2.2 million in fiscal 2012. The Company received an offer for the sale of the commercial property, which is consolidated through a VIE. The offer was below the book value of the asset and, accordingly, the Company recorded an impairment charge of $89,000 during fiscal 2012. The property was subsequently sold in November 2012.

	Years Ended September 30,
	2012		2011		2010
Balance, beginning of year	$	23,467	$	23,234	$	25,241
Additions:
Improvements	307		233		293
	23,774		23,467		25,534
Deductions:
Cost of real estate sold	—		—		2,300
Other - write down	2,280		—		—
LEAF deconsolidation	1,866		—		—
Balance, end of year	$	19,628	$	23,467	$	23,234

Resource America, Inc.

SCHEDULE IV

Mortgage Loans on Real Estate

September 30, 2012

(in thousands)

	Years Ended September 30,
	2012		2011			2010
Balance, beginning of year	$	—	$	49		$	4,447
Additions:
Other	—		—			2,027
	—		49			6,474
Deductions:
Collections of principal	—		—			4,840
Charge-offs	—		(49		)	1,585
	—		(49		)	6,425
Balance, end of year	$	—	$	—		$	49